How Bad is American Family’s Financial Problems?

With the current state of economy – not only in the US, but also in other countries – the average families are left in bad financial situations and force them to go frugal. How bad is it in the US?

In the US, the average American families are in dire danger – they have limited savings in such a way that there will be no room for error. Alas, things happen, and the bad economy amplifies the effects.

Check out this infographics from VisualEconomics.com on the American Family’s financial turmoil.

The big picture of average American family:

• As you can see, the average American family only has $3,800 in the bank. Even worse, 25% don’t even have any savings whatsoever.
• 50% American households don’t have any form of retirement account.
• The house is worth $160,000 on average, but the family owes $95,000 on it to the bank (household debt: $117,951.)
• They make $43,000 annually, but can’t seem to be able to manage to pay off a $2,200 credit card balance.
• 40% Americans in the workforces don’t save for retirement.
• And here’s the highlight of all: Less than 40% of American adults have an emergency fund as a safety net against financial disaster.

Pretty bleak picture, but that’s the reality.

How to get out of the lingering problems?

If you are one of the average American, or in similar situation in wherever you live right now, there is still hope – and the hope should NOT be put on the Government.

Take action – stop depending on the Authority and start controlling your financial future. Let the Government do their own thing, and you do your own thing. This way, everybody does his/her own role in improving the personal finance, and eventually the nation’s economy.

The best tip I can give is for you to increase your financial IQ. You don’t need to go to college for this; just read financial publications, even if it’s a back issue sold before or even thrown away by others. Also learn to use the Internet, as knowledge is at your finger tips – search for ways to be better financially and you’ll be presented a wealth of information – mostly available for free. Find mentors – don’t you know that there are people ready to help you out without asking for something in return?

Learn, learn, learn – there’s no such thing as, “well, finance is not my thing, and getting rich is only a dream.” Well, keep on dreaming, and finance is actually not as difficult as you might think.

I heard stories of people having problems in school (being dyslexic, for example) succeed in their financial life because of they learn from others. Copy from them – personal finance is not a rocket science.

Why Doesn’t Your Stockbroker Know Anything About Investing?

It is truly amazing how many people entrust their entire life savings to stockbrokers who know absolutely nothing or very little about investing. In their defense, many stockbrokers may be honest individuals who truly want to help their clients. However, the problem is that they were never trained to be investors but instead were trained to be salespeople, and they are constantly being pushed by their employers to sell. After being recruited by a brokerage company, they are subjected to intensive sales training where they are taught how to cold-call, prospect for clients, and counter various clients’ objections. The actual education on how to select and analyze particular investments is limited.

Brokerage companies spend millions of dollars every year on training new stockbrokers. Because more than two-thirds of them leave the industry within a few years, the industry has become good at training and attracting the right candidates. They lure them in with advertisements promising unlimited income potential and high-end lifestyles. However, brokerage companies are not interested in just anyone – they want people who will sell. For example, they are not interested in hiring good investors because they want people who can sell their investment products and generate commissions. Good investors spend time researching and studying possible investments. From the company’s point of view, the time spent on researching is time not spent on prospecting and bringing in more clients.

After the training, stockbrokers are judged by their companies based on how much they can generate in terms of commissions and fees instead of the quality of the returns of their clients’ portfolios. They have to meet certain quotas such as commission amounts and the number of new accounts opened during particular periods. If they don’t meet them, they lose their jobs. The brokerage firms are also known for having sales contests where brokers compete for expensive vacations, boats, and TVs. The purpose of these contests is to generate high commissions by motivating brokers to sell, and to create a hierarchical system where some of them are viewed as superior to others. In this kind of environment, brokers are likely to focus on how much money they can make off their clients, not how much money they can make for their clients.

If people were aware of really goes on in the investment industry, they would think twice about whom to entrust their money to. Investing is not rocket science, yet it requires some basic knowledge. Unless people make investment education a priority in their lives, they will continue to be easy targets of an industry that is that is more concerned with its profits than the well-being of its clients.

About the Author

Mariusz Skonieczny is the founder and president of Classic Value Investors, LLC, an investment management company. He is also the author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market.

The Fed Exits Housing Market: What is The Future for Home Owners and Home Buyers?

The Fed’s mortgage purchases have ended – what’s the future of housing market?

As reported by the LAtimes.com, the Fed’s $1.25-trillion campaign to propel the housing market by purchasing mortgages has just ended on March 31, 2010.

The purchase of huge amount of mortgages has given the Fed its largest balance sheet ever. Is it a good thing? Not quite, according to some.

Mortgage takers worry that the Fed’s mortgage-purchasing endeavor will prolong inflation. And to make matters worse, the end of the campaign also sparks worries that the mortgage rates will climb up, thus repelling home buyers away. Unhappy homeowners, unhappy real estate agents, worrying outlook on mortgages.

Sure, some market facts show that mortgage securities enjoy jump after the Fed makes its exit from the market, as reported by BusinessWeek.com. However, will the mortgage bond keep enjoying such surge? Some doubt it, some stay optimistic. Only time will tell.

Regardless the worries, investors in Asia seem to be keen enough to take benefit from the exit of the Fed, as reported by BusinessWeek.com. Let’s see how the housing market will react in a few days following the Fed’s exit from the housing market.