This shift away from job-cutting could be a sign that the nation’s 8.9 percent unemployment rate — the highest in 25 years — may be starting to level out, reports the Baltimore Business Journal (“Survey: More Employers Trimming, Freezing Salaries,” June 1, 2009).

The percentage of employers that have cut or frozen employee salaries has nearly doubled since the first month of 2009, from 27 to 52 percent, according to the most recent employer survey conducted by outplacement consultancy firm Challenger, Gray & Christmas.

Largely in response to a weakened economy, 86 percent of the companies surveyed in May said they reduced costs by freezing or cutting salaries, which represents a small decline from the 92 percent of companies who indicated in January that they’d implemented similar cost-cutting measures.

To cut costs, employers have also shortened employee work hours, imposed furloughs, eliminated tuition reimbursement programs, and made temporary layoffs.

John Challenger, CEO of Challenger, Gray & Christmas, suggests that temporary layoffs are a better cost-cutting solution for employers in the long-run than permanently eliminating positions.

“It is a lot easier to restore compensation and benefits,” he said, “than it is to rehire and retrain workers when the economy improves.”

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These mid-size cities — where real-estate bubbles were relatively non-existent and where local banks largely avoided the questionable loans that have undermined the stability of many commercial banks — are managing this recession better than the nation’s largest cities and rural towns, according to 2007 data analyzed by Moody’s Economy and the credit reporting agency Equifax.

The data revealed that mid-size cities have seen their employment rates buck national trends and their lending institutions’ consumer loan balances rise over the past year (“Many Smaller Cities Dodge Credit Crunch in Consumer Lending,” The Wall Street Journal, March 30, 2009).

“The medium-size metros that have done the blocking and tackling are better positioned during the downturn,” said Ross DeVol, director of regional economics at the Milken Institute, a California-based think tank.

Mid-Size Cities, Banks Poised to Avoid Economic Pitfalls

The success of these cities can be attributed, in part, to their retention of unique employers; many of these cities are home to specialized industries with strong staying power and have been fortunate to land long-term government contracts.

Huntsville, for example, boasts the headquarters of the U.S. Army’s Aviation and Missile Command and a 3,000-employee Boeing facility, as well as the Marshall Space Flight Center, the NASA flight center that’s planning a return trip to the moon. The unemployment rate in this city of 376,000 was only 6 percent in January, compared to the national average of 8.5 percent, and consumer loan balances actually increased 13.2 percent per household compared to last year’s fourth quarter.

And for their part, Huntsville’s banks and credit unions — where problem commercial and consumer loans only represented 2.2 percent of total fourth-quarter lending, compared to the 4.9-percent national average — haven’t just faired well, they’ve been breaking records. Redstone Federal Credit Union in Huntsville originated $43 million in mortgage loans in February, a one-month record for the company, and made $17 million in auto loans in January, which was the fifth-highest monthly total in the company’s 57-year history. And ServisFirst Bank saw a nearly 70-percent increase of total loan balances in 2008.

Lending Data Could Be Deceiving

The Wall Street Journal is quick to point out that numbers these cities are producing may only be giving the illusion that the cities are thriving and may not be “a pure reflection of new lending,” writes reporter Dan Fitzpatrick. Consumers in these areas may still be engaging in the types of consumer behaviors that contributed to the current economic crisis, drawing heavily on existing credit lines to help them pay off their mounting bills and help them find debt relief.

But Equifax Vice President Jim Powers is confident that this type of borrowing isn’t the norm. “Most lending these days is pretty tight,” he said. “Anyone that is getting a new loan, the bank deems pretty low risk.”

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To help your own kids learn how to handle money responsibly and to help them avoid the financial pitfalls you’ve made, you may want to start laying a foundation early on:

1. Begin with an allowance.
   Give your kids a weekly allowance in return for doing household chores so they get a firsthand idea of the value of money: having it, spending it, and saving it.

   Let them know that whatever allowance money they earn is theirs to spend as they please, but be sure to emphasize the fact that just because there’s money in their “piggy bank,” it doesn’t mean they have to spend it. Managing a small amount of money as a child may go a long way in establishing healthy financial habits as an adult.

2. Have them get a part-time job.
   Suggest that your kids get a part-time job once they’re of working age. A part-time job can be a real character builder and it can help teach your children the value of money and all that comes with earning it, including paying federal and state taxes.
3. Teach them about the benefit of savings.
   Advise your kids to start setting aside a significant portion of their allowance or what they earn from their job as savings. Point out that the more they save, the quicker and easier it will be for them to get that new iPod, Xbox game, or car they’ve been wanting.

   Take them to the bank to set up an interest-bearing savings account when they’re ready. Encourage them to make regular deposits and be sure to explain how their savings can grow significantly over time as their bank pays them monthly interest.

4. Ask them to contribute.
   Require that your kids start pitching in toward their own personal expenses once they get a part-time job. Ask them to pay for all or a portion of their cell-phone bill or of driving costs on the family vehicle they use, which can include gas, insurance, or the car payment.

   This extra financial responsibility will help them learn how to budget since they’ll have to set money aside for these individual expenses, a skill that will come in handy when they’re in college and on their own.

5. Tell them the truth about credit cards.
   Teach your kids about credit cards before they’re bombarded by all kinds of credit offers at college. Stress that credit cards should only be used in emergencies and encourage them to use a debit card tied to their checking account to cover monthly expenses.

Warn them about the dangers of racking up monthly charges on their credit card, including interest and other fees that may take them years to pay off if they’re making only minimum payments.

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“Consumers will still feel significant stress due to the state of the economy that will be reflected in their loan payments,” said Ezra Becker of TransUnion, one of the three major credit bureaus. “The bottom line is [consumers] have reached the limits of their ability to pay.”

Nationwide, a record 10 percent of all homeowners are either in foreclosure or at least one month behind on their mortgage payments, while foreclosures have increased 76% to 1.35 million this year, according to a National Delinquency Survey released last week by the Mortgage Bankers Association (“Foreclosures Soar 76% to Record 1.35 Million,” CNNMoney.com, Dec. 5, 2008).

New York City mortgage holders won’t fare much better in the coming months, according to TransUnion’s projections. More than 6 percent of New York City homeowners will be at least 60 days late on their home loan payments by the end of 2009 and foreclosures in the city have already weighed in at just less than the national average, increasing 50% over 2007, reports CrainsNewYork.com (“New York City Foreclosures Soar,” Nov. 4, 2008).

While overall New York City’s economy and mortgage industry have held up better than the rest of the country, Becker says “New Yorkers are closing the gap” with the rest of nation.

He advises all borrowers to do whatever they can to make “regular, consistent, on-time payments” on their debt, and to make arrangements with their lender ahead of time if they won’t be able to make a payment.

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During the same period last year, Citigroup earned $169 million from selling bonds backed by credit card debt (“Citigroup Says It Lost $1.4B on Credit Card Bonds,” Associated Press, Nov. 3, 2008).

With more financially stricken consumers struggling to repay their debts, analysts expect that Citigroup and other credit card issuers could continue to see escalating losses through next year, as consumer delinquencies mount and write-offs of unpaid consumer credit card debt continue to snowball.

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The study, conducted by First American CoreLogic, a real-estate data firm based in Santa Ana, Calif., found that an estimated 48 percent of Nevada homeowners with single-family homes are under water, compared with 18 percent of homeowners nationwide. In the Las Vegas metropolitan area alone, home values have fallen 36 percent since their peak in early 2006, according to estimates from real-estate data provider Zillow.

Many Americans are under water, explains The Wall Street Journal, because they bought homes at or near the peak of the housing boom with little or no money down and have now seen their home values plummet. Already, the mortgage meltdown has led to nearly 750,000 foreclosures this year, as measured by the ForeclosureS.com U.S. Foreclosures Index, with that number projected to surpass 1 million by the end of the year.

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Now, with Christmas just two months away and most of staring at limited holiday budgets, some retailers are offering us a budget-friendly, no-debt alternative to credit cards for our holiday shopping. Discount chains like Kmart and Burlington Coat Factory are reacquainting us with layaway — the practice that allows us to put store items on hold while we pay them off in incremental payments with no interest charges added.

Some Marshalls and T.J. Maxx stores, as well as most A.J. Wright stores, also offer layaway as a payment option, and two notable e-merchants have built their business models specifically around offering layaway to online shoppers. There’s Lay-Away.com, which features mainly appliances and electronics, and eLayaway, which offers a wider variety of products and allows you to buy items on layaway at more than 1,000 online stores.

Looming Recession Brings the Resurgence of Layaway

Layaway, widespread during the Great Depression, mostly disappeared during the 1980s and ’90s with the proliferation of credit cards and the economic boom.

“Layaway really was a great deal and kind of a way to force people to budget their money,” says Edgar Dworsky, editor of the Internet consumer resource guide Consumer World (“Layaway Message Resurrected for Holiday Shoppers,” The Associated Press, Oct. 22, 2008). “People don’t have the discipline to do that today.”

But as more of us steer away from credit card debt in the current financial environment, the demand for layaway — spurred by renewed notions of budgeting and saving — has soared. Traffic at eLayaway has skyrocketed by 91 percent over the last year, reports The Wall Street Journal (“Layaway is Making a Comeback,” Oct. 22, 2008).

Layaway: How it Works

Each store’s policy varies, but the general idea is the same: You find something you want; you pay a small layaway fee upfront for the store to hold the item; you make payments little by little; and in a few weeks, the item is yours to take home.

Although layaway is available throughout the year, it can come in especially handy right now, as the holiday shopping season gets underway.

Let’s say, for example, one of your kids is dying for a Nintendo DS, which retails for $130, for Christmas. For $18 (a $5 layaway fee, plus a 10–percent down payment), you can put the game system on layaway at Kmart and pay it off over the next eight weeks — just in time for Christmas — with a $28 payment every two weeks, plus any sales tax.

At eLayway, you can make payments either twice or once a month, and your 1.9-percent layaway fee ($2.47 on the Nintendo DS) plus any shipping and taxes are included in your monthly payments.

“I remember growing up with layaway, and it seemed like the fee was reasonable,” 41-year-old John Pace tells The Wall Street Journal. “And this way I don’t max out a credit card.”

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Consumer credit counselors say these consumers are not only unwilling to discuss their credit card debt with strangers, they’ll even go to lengths to hide it from their spouse or partner.

“We see people telling us they had the credit card bill sent to a parent’s house, a post office box, or e-mailed instead of going to their homes,” says Michael McAuliffe, president of Family Credit Management, a Chicago-based nonprofit consumer credit counseling agency.

Some people seem even to want to hide their debt from themselves. In over their heads in credit card debt, some consumers will walk into credit counseling centers with bags of unopened credit card bills.

“Some consumers just don’t want to face it,” says McAuliffe.

The CreditCards.com poll, which presented the same 12 topics to a representative sample of 1,000 people, found that financial issues — credit card debt, salary, and housing costs — overwhelmingly dominated the group of topics the respondents were least willing to discuss:

1.	Credit Card Debt	80%
2.	Love Life	78%
3.	Salary	77%
4.	Mortgage / Rent Payment	69%
5.	Health	58%
6.	Death of a Loved One	49%
7.	Weight	47%
8.	Religious Views	37%
9.	Political Views	36%
10.	Age	26%
11.	Gas Prices	13%
12.	Weather	8%

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Outstanding credit card debt has grown by more than 75 percent since 1999, Innovest notes, with consumers running up higher balances on their credit cards and paying off smaller amounts of their credit card debt each month.

The average credit card balance at Citibank is up 20 percent compared to last year, while only one in five Citibank customers is paying monthly credit card bills in full. At Bank of America, fewer than one in 10 customers pay off their total bills each month.

The report’s authors, Gregory Larkin and Laura Nishikawa, believe these trends have set the stage for mounting borrower distress and that card issuers will see a rash of credit card defaults in the coming year, leading to sweeping charge-offs — the total value of uncollected credit card balances that a bank writes off, counting it as a loss.

As the economy worsens and credit card companies hit customers with higher fees and interest rates in an attempt to recoup losses from already-defaulted accounts, even more customers will default on their credit cards, Larkin and Nishikawa explain, with issuing banks standing to lose $1 on every $10 they’re owed.

“A long build-up in consumer indebtedness, deteriorating economic conditions, and a potential ‘sudden stop’ in credit availability could cause charge-offs to rise dramatically into 2009,” Larkin and Nishikawa write.

Capital One Could Experience Highest Charge-Off Rates

Capital One, considered “worst-in-class” by Innovest standards, may be the most at risk of having customers default on their credit cards because of its aggressive marketing strategies and “fee-trapping” practices such as issuing low limits on the majority of its cards, which are more likely to cause customers to incur over-the-limit fees.

The bank’s customers are already showing signs that they’re straining to keep up with their credit card debt — charge-offs at Capital One are at 6.3 percent and climbing, Innovest reports.

Capital One CEO Richard Fairbank contends that his company is prepared for any hard times ahead, arguing that the credit card business is resilient and not subject to the same issues of collateral value that have devastated the mortgage industry.

“In our U.S. card business, we’re taking many actions to navigate the current downturn,” he said.

Like other card issuers, Capital One is likely becoming choosier with its credit card applicants at the same time that it re-evaluates its current customers, lowering credit limits and curtailing discounts on balance transfers in order to mitigate its risk from consumers who won’t be able to make their credit card payments.

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Here, from The Sacramento Bee, are five pointers to help you find and choose a personal finance advisor:

1. Get personal recommendations.

   As with any other service, when picking a financial planner, you should choose someone who you know has a proven track record. Ask friends and family not just who they would recommend to manage your finances, but why, so you can get a better idea of which recommended advisors you might work best with.

 

2. Research background and credentials.

   Make sure that the candidates you’re considering to handle your finances have the necessary educational background, hold a clean compliance record, and are properly certified and licensed. Verify certifications and licensing with the Certified Financial Planner Board or other relevant professional organizations.

   Look for financial advisors with at least five years’ experience, who have had some time to grasp the ebb and flow of the markets and whose expertise fits your financial needs.

   Keep in mind that if your needs have more to do with personal taxes or estate planning, you may be better served by meeting with an accountant or an attorney.

 

3. Schedule face-to-face appointments.

   Meet with at least three financial planners in person before you make a decision. See if they can speak about your finances in terms that are easy for you to understand, and grill them as much as you need to in order to gauge how knowledgeable they are in their advertised area of expertise.

   Pay close attention to how much of what they say is a sales pitch and how much of it is solid, fact-based advice.

   “The biggest mistake people make is being very heavily influenced by the advisor’s personality and sales skills,” says Jack Waymire, author of Who’s Watching Your Money: The 17 Paladin Principles for Selecting a Financial Advisor.

 

4. Ask for fee and compensation structures in writing.

   Find out ahead of time whether you’d be paying a potential advisor a flat fee, an hourly fee, or a fee based on a percentage of your investment assets, and whether these fees are payable in a lump sum or in installments. Get fee schedules in writing, and make sure that any payment arrangements a financial planner agrees to in discussions with you will be binding.

 

5. Nail down accessibility.

   Being able to easily get a hold of your financial planner in an emergency situation, especially right now, as the global markets teeter on instability, will be critical, both for your investment portfolio and for your peace of mind. Ask potential advisors about their preferred form of communication, whether it’s by phone, e-mail, or in person, and find out what their after-hours availability and return-call policies are.

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