American families have cut expenses to the bone, but stagnant wages still make keeping up with inflation impossible for the middle class. (Photo Credit: CC BY-SA/Dennis Jarvis/Flickr)

A corporate information service called American Pulse recently conducted a survey that shows how far the U.S. job market has fallen into the mire of class distinction. As the Huffington Post notes, 90 percent of U.S. workers surveyed admitted that they do not expect their stagnant wages to be able to compensate for rising gas and food prices.

‘Permanent midnight’ for the middle class

As the American middle class continues to sink beneath mountains of debt, rising prices and inadequate pay en route to a “permanent midnight” of poverty, faith in U.S. government’s economic policies has declined. Talk of rising inflation and a double-dip recession continues, and families who can ill afford to tighten the belt any more wonder where they can cut back. Provided salaries remain at low levels and prices continue to skyrocket, survey respondents said they’d undergo greater austerity measures in the following areas:

• Only buying necessities: confirmed by 70.5 percent
• Infrequent driving: 63.4 percent
• Spending less on clothes: 58.9 percent
• More bargain hunting: 53.1 percent
• Tightening the personal budget: 50.0 percent
• Buying generic: 49.9 percent
• Buying fewer groceries: 42.0 percent
• No change: 6.6 percent

Adieu, gross domestic product

Historically, consumer spending accounts for about 70 percent of the United States’ gross domestic product. Significant decreases in consumer spending retard economic growth. As the consumer spending growth rate of 2.2 percent in the first quarter of 2011 was much lower than economists had anticipated, the problem becomes obvious.

Nearly half of Americans believe a second Great Depression is rapping at the chamber door, according to a CNN poll. A June Gallup poll reflected shrinking consumer confidence, while a separate poll found that workers are currently less satisfied with their salaries and overall economic condition than they were before recession struck in 2008. Lack of career advancement was a common problem listed by respondents in nearly all recent surveys on the topic.

Breaking the link between profits and raises

Getting a raise used to have some connection to corporate profits, notes Brad Delong in Mother Jones. However, even though U.S. Department of Labor research has shown that U.S. worker productivity has surged, income has remained stagnant for most Americans. Data indicates that if the median U.S. household income had kept pace with the state of the economy since 1970, it would currently be $92,000, rather than $50,000. U.S. CEOs are making more money than they have since 2007.

How to ask for a raise, just in case

Sources

American Pulse

CNN

Economic Policy Institute

Huffington Post

Mother Jones

In 1923 Germany, inflation was so bad that burning money was cheaper than buying firewood. (Photo Credit: CC BY-ND/illuminating9_11/Flickr)

Manufacturing activity and consumer optimism took a nosedive despite a continued upward creep in national consumer prices. The creep has slowed to less than zombie-like pace, however, which indicates that the economy still needs a jolt.

The Consumer Price Index

According to Ameriprise Financial senior economist Russell Price, the decline in manufacturing plus low optimism are much ado about something nobody wants to hear.

“Both of them are reflective of the slowdown in the economy that we have experienced over the last few months,” he said.

The Consumer Price Index, according to the U.S. Department of Labor, was up 0.2 percent in May, versus 0.4 percent in April and 3.6 percent one year previous. May’s under-performance is the lowest CPI since November, according to the Bureau of Labor Statistics.

Rising food prices — up 0.4 percent — didn’t help. Strangely, one economist managed to report that the U.S. energy index fell by a percentage point last month. Within the central bud of that surprise was a 2 percent U.S. gas price decrease. Lower fuel prices didn’t seem to help skyrocketing food prices.

Clothing, shelter and cars getting more expensive

The Consumer Price Index report had more to say regarding price acceleration. According to the New York Times, clothing, residence, recreation and new automotive costs were all on the rise in May, yet demand did not falter. Airline prices, personal care items and sot-weed tobacco went down last month.

Conditions didn’t slack off – they ‘deteriorated’

The choice of words the Times uses to describe the state of manufacturing in New York is telling. According to the New York Federal Reserve, conditions for manufacturers have deteriorated so far in June, marked by a 20-point drop in the manufacturing industry’s conditions index to minus-7.8 points, the first dip below zero since November 2010. Forecasters had pegged a decline that was supposed to have settled at positive 14.

Part of the reason for the dismal manufacturing performance is tied to the decline in auto production following the Japanese earthquake, tsunami and nuclear disaster.

“It affects just about every region,” said Price. “In the manufacturing report, the component shortages were the No. 1 factor, and then the broader softening that went along with the higher gasoline prices.”

Enjoy your $20 watermelon

Sources

Consumer Price Index

New York Federal Reserve

New York Times

A stronger dollar is the key to recovery, not quantitative easing, says investment manager Abigail Doolittle. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

Quantitative easing (QE) has been referred to by some economists as the last vestige of an empire in ruin. The idea is to create money, suppress rates, promote liquidity and watch inflation spread. It’s like a plumber who tries to fill a bathtub by pouring in massive amounts of water, without plugging the drain first. According to CNBC, however, the Federal Reserve is reaching toward turning off the tap, and investors have decided to cut back.

Fed sends S&P into downward slide

The S&P 500 was down by 2 percent this week and is in the middle of a 7 percent slide that began May 2. The loss in investor confidence has much to do with drops in a variety of economic indicators, the Federal Reserve turning off the tap being one of those. And the worst may be to come, suggests United-ICAP energy analyst Brian LaRose.

“If you look at what values have been rising over the course of the quantitative easing program, it has been merely commodities and equities, nothing else,” he said. “Reality is starting to take hold.”

Pop goes the golden goose

That reality may be that the gold and oil bubbles will pop, reports Bloomberg. That, in turn, would lead to a surge in the U.S. dollar, which has lost as much as 10 percent against other world currencies since the last time Ben Bernanke and the Fed boarded the QE bus.

The possibility of further bailouts for debt-ridden Greece has dragged the euro down, as has the lack of a unified financial plan between euro-zone nations. The indecision has been less than inspiring to global investors.

In the U.S., consumer worry continues to spill over into the housing market. If people aren’t spending and housing prices continue to fall, the path of disaster for the U.S. is clear, says CNBC.

Finding the bottom with both hands

While analysts like Richard Ross claim that the U.S. economic fix is only beginning to take hold and that, as investment strategist Jeffrey Saut puts it, the market is “bullishly configured” as long as the S&P holds around 1,250, the naysayers remain out in force.

“We have mountainous inflation efforts in place with historically low yields and strong demand for bonds. That’s like a rubber band that’s going to snap at some point, and somebody’s going to get hurt,” says Bill Larkin, portfolio manager at Cabot Money Management in Salem, Mass.

In order to find out where the economic slide will stop, investment firm manager Abigail Doolittle believes the Fed should do much to strengthen the dollar and allow rates to rise. The effect will be slow but lasting.

“Force investors off of the liquidity high of the last few years, and replace immediate-term gratification with the long-term satisfaction of investing in an economy with a truly solid foundation,” she said.

Quantitative easing: When failure doesn’t sound like failure. (Contains adult language)

Sources

Bloomberg

CNBC

Huffington Post

Quantitative easing Wiki

British consumers turn to payday loans at an alarming rate. / Image: Images_of_Money/Flickr/CC BY - www.howmuchcaniborrow.org.uk

The number of payday loans has increased significantly in Great Britain over the last month. The increase continues to sharply escalate following the Bank Holiday at the beginning of the month. The demand has risen by about 58 percent from what it was in this same period last month.

Prices continue to rise

Many financial experts believe this increase in payday loans in Great Britain is a significant indicator of the direction of the country’s troubled economy. According to Moneysupermarket.com, which is a product comparison site, the weekly expenditures for a working class family in Great Britain have risen by an alarming 54 pounds (close to $87) a week over the last six-month period.

Wages stay stagnant

Working people are struggling harder than ever to stay on top of their finances as prices continue to grow and wages continue to stagnate. A report recently put out by Scottish Widows claims that about 8.5 million households would be in deep trouble financially should their primary source of income end. Only about 25 percent of people surveyed reported that they would be financially stable in the long term if their income was lost.

The Consumer Protection Report from Scottish Widows also reported that nearly half of the country’s families with children are reliant upon two salaries.

Payday loans an economic barometer

Tim Moss, who is the head of loans and debt for the Moneysupermarket.com site, says: “These products act as a barometer, giving a unique insight into the state of the nation’s finances.” Moss continues, “It’s no surprise to see the demand for payday loans rise so sharply in the current climate.”

Payday loans often cheaper than overdrafts

Moss adds, however, that despite their critics, these types of loans are often a better value than the penalties faced when entering an authorized overdraft.

Decisions should be weighed carefully

Consumers should always weigh the decision carefully before taking out a payday loan. Payday loans can be expensive if they aren’t paid back on time, and payday loan terms generally only last a few weeks.

Sources

My Finances

Payday Bank

Yorkshire Post

Federal Reserve Vice Chair Janet Yellen has confirmed the Federal Reserve isn't going to tighten the credit supply just yet. Image from Wikimedia Commons.

The Federal Reserve has announced that it won’t be tightening the national credit supply just yet. The Federal Reserve has certain controls over the amount of available lending capital in the financial system. Fears of inflation have caused some to think the credit supply needs to be tightened, but the Fed does not think that is currently prudent.

Fed says economy is too shaky to tighten credit

Prices of consumer goods, such as food and gasoline, have begun rising recently, causing many to worry about economic inflation. This has prompted lawmakers and finance industry insiders to question whether the Federal Reserve, the key institution in setting monetary policy and controlling things like inflation, should start restricting the available credit supply. Members of the Fed, however, are convinced that the overall economy is too shaky to tighten the credit supply, according to MSNBC. At a recent speaking engagement at Yale University, Fed Vice Chair Janet Yellen said that conditions weren’t right, but the central bank would be easing off its current policy of keeping interest rates at near zero.

Unemployment too high

The Fed partially controls the supply of available credit funding for the banking system of the United States and influences the interest rates that banks charge. During a recessionary period, the Fed can lend short term loans to banks at zero or close to zero percent interest to stimulate lending. Those banks can lend that capital to consumers, as mortgages or personal loans, or to other financial institutions. There are, of course, many other facets to the Federal Reserve’s operations, but credit supply is a key function. Alternately, the Fed can cut back on the amount of available capital if it thinks price inflation is making the nation’s currency worth less than it should be. The price of commodities like oil and food is increasing, which means that $1 doesn’t go as far.

Banks also have CFPB to worry about

The Federal Reserve is going to eventually restrict the supply of credit, meaning interest rates on loans will start increasing in the next year or so, once the central bank feels confident enough about unemployment and other economic conditions. Banks will also have to follow rules from the new Consumer Financial Protection Bureau, which will levy fines for legal violations. The bureau will start operating in July, and spokesperson Elizabeth Warren has promised the first new regulations set in place by the bureau by January of 2012, according to Reuters. The CFPB is still a hotly debated issue in Congress, so the extent of its reach has yet to be determined, but a greater degree of regulation is soon to set in for the financial system.

Sources

MSNBC

CNBC

Reuters

If the yuan is held down for too long, the global economic crisis may deepen. (Photo Credit: CC BY-SA/David Dennis/Flickr)

Chinese President Hu Jintao’s visit to the U.S. has financial experts wondering whether President Obama will be able to convince him to let the value of the yuan rise. China is a poor country at its core, but its population and rapid growth make it the world’s most intriguing economic superpower. China’s monetary policy could be leading the nation toward an economic crisis that will reverberate across the globe, writes Paul Krugman in the New York Times.

China refuses to see the chasm

As China’s government does not view inflation favorably, it has been trying to maintain tight control over the yuan. In in a Jan. 21 New York Times op-ed piece, Paul Krugman states this has already led to an artificially large trading surplus, which has increased unemployment in many countries, including the U.S. If China continues to hold the yuan down, employment will continue to remain depressed and China will lapse into an inflation-prone economy.

Inflation, Krugman says, is an economic market’s means by which to undo currency manipulation. China has kept the yuan weak and suppressed wages and prices. While the Chinese government’s goal is apparently maintaining competitive advantage in the global market, market forces have forced China’s wages and prices up. Thus, at China’s current rate of inflation any manipulation it has done will be erased within a few years.

China’s leaders don’t want this

For a variety of reasons, from the nationally unpopular notion of high inflation to protecting the interests of exporters, the Chinese government is fighting against forces in the world market, says Krugman. Current inflation rates are well above the interest rate China allows to accrue on bank deposits, 2.75 percent. That amounts to economic exploitation of the populace, Krugman believes, and the inevitability of rising prices will make the exploitation even worse.

Rather than allow the yuan to rise in value, China blames the U.S. – the Federal Reserve, specifically, for printing too much money. Meanwhile, China raises interest rates and restricts credit. As outside money funnels into the country, China’s credit enforcement becomes a fruitless endeavor. Price controls are China’s latest economic tool of choice, but economists have found that that tactic rarely works. Krugman says if China continues on its current course, the collateral damage to the world economy will be devastating.

Source

New York Times

China wants more U.S. investment opportunities

The benefits of inflation include more coin in your pockets, over time. Image: Flickr / MoneyBlogNewz / CC-BY

It may sound crazy to some people, but the benefits of inflation could help the economy. Studies have shown that most people are against inflation. Moderate inflation, however, could get the stagnant economy going.

The benefits of inflation – the basics

Inflation is a simple concept. When prices go up, the “real” value of money goes down. Inflation leads to increasing prices. Inflation also reduces the amount of risk that people and companies are willing to take on. Usually, the Fed controls inflation by raising interest rates, which makes it harder to take on risk. This action makes it more “expensive” to borrow money, both short term loans and long term loans.

The benefits of inflation for states

The Fed controls federal monetary policy with the banking system. Fed monetary policy uses the banking system to generate effects throughout the economy. With this centralized approach, many states have  inflation rates that may be more or less than the federal rate. Nevada, for example, has an inflation rate slightly higher than the federal average. Nevada’s economy is also recovering slightly faster than the national average. In Nevada, the benefits of inflation include making existing debt worth less and making wages rise to match inflation. Over time, people in states like Nevada have more money to spend and less “real” debt to pay off.

Why we hate inflation, despite the benefits

Inflation is often considered a dirty word — for logical reasons. Rising prices reduce purchasing power. The decreasing value of money also makes individuals more risk-adverse. From a fiscal standpoint, however, inflation can help the economy grow. Inflation shrinks debt to more manageable proportions. Inflation also discourages “quick fixes” for financial problems. Plus, when inflation is kept under control, “real” wages aren’t reduced and the standard of living improves.

Sources

New Yorker
Amateur Asset Allocator

The yuan is now a commodity for global exchange. (Photo Credit: CC BY/Jason Wesley Upton/Flickr)

China has played its hand very close to the vest when it comes to controlling its currency, but as the Wall Street Journal reports, the time has come to spread the wealth. The yuan, which Beijing once prohibited from being bought or sold outside China’s borders, has been released into global currency trading for the first time. Considering China’s position as a world economic power, interest in yuan exchange has been tremendous.

Yuan exchange: from zero to $400 million

Daily yuan trading quickly accelerated from zero to $400 million, according to reports. As China has loosened the reins on its currency, other nations are now able to transact with China in yuan for the first time, whether it be in finance trade, investment or borrowing. While the value of the yuan is still under tight control – China believes this will keep the currency from fluctuating as wildly as the dollar and euro – the availability of the yuan worldwide could change the face of world business, writes the Wall Street Journal. And demand for the yuan is already extremely high.

‘Full convertibility of the yuan’

Norman Chan, head of Hong Kong’s central bank, told the WSJ that “This is a step moving to full convertibility of the yuan … a major change of the international financial landscape.”

While the dollar, yen and euro currently dominate the $4 trillion global currency market, the yuan is fast-approaching critical mass, according to traders. Chinese companies bank their yuan in Hong Kong accounts – where offshore trading is permitted – in tremendous amounts. By year’s end, experts predict that 300 billion yuan ($45 billion) will be ready for convertibility.

How yuan trading works

Global currency trading in yuan will require traders to have a Hong Kong bank account. Chinese companies will be allowed to move yuan offshore for business purposes like exports and imports. Once the yuan is in an offshore account, the holder of the account can use the currency as they please.

As banks like Citigroup and HSBC are already offering investors yuan-priced options and companies like McDonald’s and Caterpillar are selling debt priced in yuan, it is clear that yuan exchange won’t be slowing down any time soon.

Sources

Wall Street Journal

Just when inflation was going so well…

A China interest rate hike caught the world off-guard and shows the government is more worried about inflation than it is willing to admit. Image: CC peruisay/Flickr

The first China interest rate hike since 2007 caught analysts by surprise and knocked  world markets off-kilter. The Chinese government offered no explanation, but consensus among experts is China has recognized the need to stem inflation in its economy. Fears that the China rate hike could drag on global recovery sent stock markets in Europe and the U.S. downward Tuesday, but some analysts think China will avoid any significant economic slowdown as it prepares for a 2012 leadership transition in the communist party.

The China interest rate hike

The China interest rate hike raises benchmark one-year lending and deposit rates by 0.25 percentage points. The New York Times reports that the China rate hike is proof that the Chinese government is struggling to control inflation, skyrocketing housing prices and an economy overly dependent on exports and excess investment. Many economists stress that China should raise the value of its currency, the renminbi, to fight inflation and increase imports. But the Chinese government fears that allowing the renminbi to rise will kill tens of millions of export jobs. Instead, it hopes the China rate hike will slow growth, get lending under control and encourage saving.

China’s overheating economy

A huge economic stimulus package and aggressive lending by state-run banks pushed China out of the global financial crisis in 2008. CNN reports that since then, the Chinese economy has expanded rapidly while western economies remain sluggish. China’s gross domestic product grew at a 10.3 percent annual rate in the second quarter. U.S. GDP rose 1.7 percent. China’s exploding GDP has lead to soaring wages, food prices and real estate values. Consumer prices in China rose 3.5 percent in August spurred by a 7.5 percent increase in food prices. Real estate prices rose 9.1 percent compared to a year ago in China’s largest cities.

Why China’s rate hike won’t work

Michael Pettis at Business Insider said that the China rate hike is too little to offset its inflation rate. China’s economy is so dependent on artificially low interest rates, the smallest increase will cause financial distress. Pettis writes that more China rate hikes in the near future may put a dent in the country’s over-reliance on excess investment. But with a communist leadership change looming in 2012, that is unlikely, no matter how badly China needs it.

Sorry, no COLA to Social Security next year, either. (Photo Credit: Public Domain/U.S. Government/Wikipedia)

Since Congress established the annual cost of living adjustment (COLA) for Social Security payments in 1975, only twice have Social Security payments actually failed to rise. According to the Associated Press, 2010 was the first year without a COLA for Social Security, and 2011 will be the second. The Social Security Administration blames the lack of a COLA on inflation rates being too low.

Congress working to make up for lack of Social Security COLA

More than 58 million American retirees and disabled people depend on Social Security, and all of them look forward to the annual COLA. In response to what will be the second straight year without a raise in benefits across the board, the House of Representatives plans a November vote on a bill that would give each Social Security recipient $250. House Speaker Nancy Pelosi hopes to move the bill through the House, but the AP indicates that there is already stiff opposition in the Senate. Such news will no doubt add to the already heavy burden many retired Americans carry. Savings and home values are still low thanks to the recession, and the cost of living continues to rise as COLAs fall by the wayside.

“We’re a little bit upset because our bills are going up and our Social Security isn’t,” said retiree Betty Dizik, 83, to the AP. Dizik’s only source of income is a $1,200 month Social Security check. And her situation is far from unique. The average Social Security check is $1,072 per month. The Social Security Administration also indicates that 64 percent of those who received Social Security compensation in 2008 depended upon it as their sole income.

The last Social Security COLA was a big one

Social Security is currently supported by a 6.2 percent payroll tax paid by workers and employers. The maximum wage cap for which the tax still applies is $106,800. With the last Social Security COLA in January 2009, payments went up 5.8 percent, the largest increase in 27 years, reports the AP. An increase in energy prices led to that abnormally large COLA.

By law, a Social Security COLA will not occur again until consumer prices rise above 2008 levels. Social Security Administration anticipates that this will occur in 2011, leading to a 1.2 percent COLA that will hit in January 2012.

Sources:

Associated Press

AP coverage of COLA-less Social Security

A Federeal Reserve member said Japanese-style deflation in the U.S. economy is a possibility if the Fed holds benchmark interest rates at record lows indefinitely. Robbophoto/Flickr photo.

A warning that deflation could set in as U.S. economic recovery weakens was sounded by James Bullard, the president of the Federal Reserve Bank of St. Louis, Thursday. Preventing inflation has been the focus of Federal Reserve as it formulates policies to guide the U.S. economy out of the recession. But Bullard cautioned that Fed’s current policies to stimulate growth are putting the U.S. economy at risk of falling into a Japanese-style deflationary cycle that could keep the economy weak for several years.

Deflation could result from preventing inflation

Deflation is a widespread and prolonged drop in the price of goods, services, homes, stocks and wages. The New York Times reports that the Fed has been focused on preventing inflation. Starting in 2007, the Fed lowered the benchmark interest rate all the way to zero and pumped some $2 trillion into the economy with an array of emergency loans and purchases of government debts and mortgage bonds. To buy all those assets, the Fed essentially printed money — the $1 trillion in reserves. If the reserves were withdrawn and lent out quickly, the supply of money in the economy could increase rapidly, thus triggering inflation.

A recipe for deflation

The Fed quit buying government debt in March. Since then, the U.S. economic recovery has faltered and the threat of inflation is low. Bank lending is contracting. Big companies are sitting on piles of cash. Small businesses can’t get loans. The Fed’s reserves won’t be entering the money supply anytime soon. Unemployment is high. Home sales are at record lows and home prices are falling. The big picture has people like Bullard thinking ahead to the possibility of deflation.

Japanese deflation

Deflation started in Japan in the early 1990s. A 1980s real estate bubble burst, banks took a bath on real estate loans, restricted lending and asset prices fell. Cheap imports further lowered prices. The Bank of Japan and the government tried to eliminate it by reducing benchmark interest rates. The bubble’s collapse lasted for more than a decade with stock prices bottoming in 2003. Stocks went even even lower when the global economy collapsed in 2008. In November 2009 Japan returned to deflation, according to the Wall Street Journal. Consumer prices fell in October 2009 by a near record 2.2 percent.

Benchmark interest rate a ‘double edged sword’

Deflation warnings are being sounded by Bullard, a voting member on the Fed’s main policy-setting committee, as the Fed considers additional steps it should take to stimulate the economy if the weak recovery falls back into recession. The Associated Press reports that Bullard said the Fed’s pledge to hold rates at record lows for an “extended period” is a “double-edged sword.” The pledge could make investors, businesses and ordinary people think inflation could be heading lower, which could aggravate the risk of deflation. In addition to lifting the cap on the benchmark interest rate, Bullard said resuming the purchase of government debt should be considered to prevent deflation if their is a new shock to the weakened economy.

Payday cash is being threatened yet again by the economy. This time it’s the wage average that’s wreaking havoc on the economy. A new government survey showed that consumer’s economic rebound is being hampered by an inflation-adjusted wage fall. Since last year, it has fallen 1.6%, which is the biggest drop its seen since 1990. This poses a real problem for the economy because coupled with the cutback on lending, and slow job growth, people don’t have the cash needed to fuel into the economy. And spending is just what the government was hoping would push the economy out of its recession.

Despite the recession being over, its aftermath is now what is hampering consumers from returning to old buying patterns. Many families are struggling with huge health costs, tuition, and daily expenses. All are moving quickly above the inflation rate and stretching people’s budgets beyond their limits.

Labor Department checks in

According to the Labor Department, food costs are coming down. They came down at the largest rate in over 50 years. Despite this being good news, the price of energy grew at such a rate that it ate all grocery savings. For example, Angie Kimbrel, middle-class homeowner in Birmingham, Alabama, has been financially stressed since 2007. She is an insurance underwriter who has seen work slow dramatically over the past year. She said, “I haven’t seen anything getting cheaper.” Her biggest money draws are health insurance and gas.

Economists expect inflation to remain low throughout 2010 because that gives the Federal Reserve the ability to keep interest rates low. Their purpose for the low rate is to encourage people to spend and borrow. Inflation is remaining low, as are wages, because most employers are still wary of raising salaries. The lack of salary potential is weighing heavily on the minds of consumers who have seen a huge decline in jobs over the past two years. In fact, since 2007, the market seen a loss of 7.2 million jobs and the number of unemployed is up to 15.3 million. With numbers like that, it’s difficult for consumers to think positively about their payday cash, even if they are employed. Kimbrel added, “I don’t like seeing my paychecks now because it’s a reminder of how difficult things are right now.”

The wage problem

Mark Zandi, chief economist at Economy.com, said, “When people are unemployed and wages are weak, household spending is depressed and businesses don’t have any pricing power. This is the reason that inflation is not a problem.” The last time a strong wage gain occurred was back in 1973 when a double-digit inflation occurred due to oil prices reaching highs. As a result, many unions made the move to negotiate cost-of-living increases into their contracts.

The economy regulates

Payday cash is still not what it used to be and consumers are concerned. The biggest problem is now inflation is playing a role in wage pricing. Legislators are striving to spur the economy back into action, but it will take time for things to regulate. Until then, consumers need to be vigilant about their savings and budgeting plans throughout 2010 and closely watch inflation.

Start Your Payday Cash Application HERE!

There is more bad news according to a recent survey done by the National Bureau of Economic Research. The survey, titled “Financial Literacy among the Young” showed that fewer than 33% of young adults from 20 to 30 years of age have a basic knowledge of interest rates, inflation and how to control investment risk. The survey showed that though people are willing to learn, they are not educated on basic financial issues.

If you count yourself as one of the millions of Americans who has a lot to learn in terms of finances, then do your own research. Here are some tips about managing your finances. A basic understanding of each could make a huge difference in your future economic health.

Your budget is key

You may be tired of hearing about the budget, but the budget is Number One when it comes to finances. You have to know how much money you bring in, how much you put out, and the surplus or deficiency that generates every month. The easiest way to do this is to either write everything down in a notebook or find some online software that can help. Mint.com is one example of a website where you can keep track of your own budget. Once you figure out whether or not you have a surplus or a deficit at the end of your accounting period, you can start cutting back on unnecessary items.

Build up savings

Your parents were right: Cash is king. Parents of earlier generations knew that money had to be stashed away. Somewhere along the way, we forgot the value of saving and became enamored of credit. We started spending money we don’t have. How do you fix that? Start saving again, just like your parents did. The best thing to do is take a percentage out of your paycheck and set it away before spend money on anything else.

It’s not always wise to use credit

Credit-card debt is a huge expense for a lot of families, and it can cause enormous problems. The best thing to do is have credit cards, but use them only occasionally for small purchases. Then pay them off right away. The cost of credit is just too great to hold a balance for any length of time. Even if you have a relatively low interest rate, you are still paying much more than you would if you paid with cash.

Plan for retirement

The Roth IRA is a great retirement-planning tool. It’s a flexible and tax-free retirement plan. Normally every workplace has some type of IRA available and you should always take advantage of company matching. If your company doesn’t match your IRA, then stay with your own Roth IRA.

Insure yourself

For anyone with young children or other dependents, life insurance is a necessity. A general rule of thumb is to have enough life insurance to cover eight to ten times your current annual income. That may sound like a lot, but it isn’t. Once you die, your loved ones, especially young children, will need money to sustain themselves. If you make $80,000 a year, for example, you should buy $800,000 of coverage. If your family has to live on that money for 15 years before they are old enough to manage by themselves, that’s only $53,333 a year.

Managing finances wisely

If we’ve learned just one thing from this recession, it is that wise decisions are key to surviving a tumultuous economic market. Although things are on the upswing right now, that doesn’t mean that things are back to normal. People who were mired in debt before the recession hit don’t have the luxury of waiting to sort out their finances. It’s best to get into the hard work of picking apart spending habits and changing them as soon as possible. Your financial future depends on it.

He wants to teach your kids about money. You should listen, too. (Photo: DIC Entertainment)

What have we learned about the way people handle money lately? Loose and lazy seems to be the general rule in America, in that people don’t tend to plan as much for the future as they should and operate on instant gratification. Lack of impulse control is common. Yet the current recession has been a deep, dark, truthful mirror of sorts, not only for ourselves but for our government. Just as we must manage our money well and make informed decisions, the government needs to do the same and stop shoveling problems under the rug. Hopefully, the Obama administration will start breaking some of the old ways.

But what about us?

Payday loans and unsecured loans offer short-term help, but what should we do over the long haul? We should look to any sources we can find to teach ourselves and our children about finance. First and foremost, it should be part of the core educational curriculum from a very early stage in schools.

However, there are other tools. For instance, Warren Buffett, the mastermind investor of Berkshire-Hathaway, has agreed to lend his voice to a new animated series called “The Secret Millionaire’s Club.” The idea behind this is to “get children to grasp basic finance lessons well before they do things like, say, agree to a risky, adjustable rate mortgage,” reports The Huffington Post.

Here’s Buffett’s idea

If we can get through to some young people, say it’s better to be ahead of the game than behind, watch out for credit cards, most important message is the best investment you can make is in yourself. Teach them if something is too good to be true it probably is. So if they learn those things the easy way through these stories early on it may save them learning the hard way later on.

He’s definitely enthusiastic about “The Secret Millionaire’s Club.” Here’s a recent CNBC interview:

Stock market looking up

People need to know about these kinds of things. People want to know what’s going on with the stock market. Specifically, whether or not they should start investing again. On that matter, Warren Buffett has had good things to say. Now that the Dow has hit 9,000 for the first time since January, he’s weighing in: “I would much rather own equities at 9,000 on the DOW than have a long investment in government bonds or a continuously rolling investment in short term money now. Again, I don’t know where it’s going to go next week or next month.”

So according to Buffett, investors should invest now. Business may still be flat, but as Buffett puts it, “If you wait until you see the robin, spring will already be over.”

Short term money?

Payday loans and unsecured loans are short term money. If your budget has a real need for that kind of boost, you can apply right here, right now. And be sure to check out “The Secret Millionaire’s Club” when it hits a computer or television near you.

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