Darwin's Finance — Financial Evolution: Education, Adaptation, Achievement

Should Teacher Salaries Be Published for All to See?

by Darwin on December 23, 2011

The other day, a friend sat down at my wife’s table at a kids’ school function and seemed a bit sad and said, “Well, now that you all know what my husband makes…that’s how my day’s going”. My wife and the others at the table actually didn’t know what her husband made (until she made mention of it!), but the premise was that the newspaper had just published the salary of every teacher in the entire school district. Her husband is a teacher in the district and she feels a bit sheepish or upset I suppose that everyone in her social circles, parents of kids her child goes to school with and even older school kids savvy enough to look the information up all know what their teachers make per year.

Rationale for Publishing Teacher Salaries

My wife is a teacher (on leave while home with the kids, but I’m relatively familiar with teacher issues as a result) and personally, it wouldn’t bother me much if her salary were published because with enough digging, one can usually discern roughly what a teacher makes anyway based on years of service, whether or not they have a Master’s degree, etc. from the school contract. However, it’s not definitively published in a list for all to see. Secondly, my wife isn’t the sole breadwinner of the family, so what she makes really provides little bearing or insight into our family income. In the case of this family, the woman’s husband is the sole worker in the family, so now everyone knows what they make. This seems to be a mixed practice depending on district so I was thinking about what the rationale might be:

You Work for Us – That’s a common refrain principals and teachers here from angry parents that disagree with a disciplinary action, a policy or otherwise. Perhaps there’s been some sort of outcry from taxpayers that since school district employees are beholden to the taxpayer, they deserve to have full transparency showing each and every salary.
People Could Figure It Out Anyway – Like I mentioned before, a parent that was nosy enough to try to figure out what a particular teacher makes could probably do so by looking at their tenure, degree, etc. and match it up to the schedule in the school contract which is public record. This is the tradeoff of being in a union. While it’s virtually impossible to be fired for cause, you all make the same salary no matter what your performance. It’s all just based on tenure, level of education and that’s it. So, the argument here might be that the district isn’t really revealing anything that parents don’t already have access to – they simply made it more convenient.
Retaliation – Another interesting theory (my own), is that I’m aware that there was a pretty contentious debate this past year over renewal of the contract. Evidently, the teachers actually ended up having to work without a contract for a while because they couldn’t agree on salary increases and healthcare contributions. This same drama plays out in hundreds of districts each year, but I wonder if, as part of the new contract, this is something the town felt they “could” do, so they did it, to kind of thumb their nose at the teachers for being difficult during the negotiations? Not sure, but anything’s possible. See, I just don’t see the rationale for why this info should be made available to the public.

Why This Seems Completely Unnecessary

I get that public figures of significance, like mayors, judges, police chiefs and other leaders end up having their salaries published. This is because, yes, the public is paying their salaries, but also to have some level of accountability and a reality check on what they’re making. For instance, wouldn’t things start to seem a bit fishy if all the local public leaders were making $300,000 per year while taxes kept skyrocketing each year and public services were being cut back? It makes for a means to compare salaries against other local municipalities to ensure what you’re paying as a taxpayers is reasonable and comparable to others in your locale. But individual school teachers? What’s the point? Imagine a highschool teacher being called out, criticized or otherwise confronted with his salary information in the middle of class by a punk teenager? I’d be pretty upset, but hey, it’s public info now! As much as people pretend salary information doesn’t matter and that they’re about so much more than what they make, the reality is that society places a certain value or judgment on people based on what they make. Corporations do a good job of keeping everyone guessing and not publishing salaries of the rank and file (this also helps to deter employees from complaining about what they make by looking around them). But what value is served by publishing the specific salary of each and every teacher in a district? While some people could guess what teachers make if they were so inclined, it’s not until the exact number is published that it becomes a topic for routine conversation and gossip. Seems to be unnecessary to me.

I’m Interested in Your Thoughts on this and other typical public sector employee salaries

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Are You Prepared for 5% Annual Returns for Years to Come?

by Darwin on November 30, 2011

In yet another common refrain from the Bond King Bill Gross, he stated this week (CNBC) that anyone realizing even 5% returns on stocks or bonds should consider themselves in the upper echelon of performers in the years ahead due to the debt issues in the EU and US which are anticipated to restrict growth for years to come (thesis being we’ve lived on years of false prosperity from borrowing money instead of living with our means and as we de-lever and enact austerity, this will crimp GDP in western nations). This is a far cry from the long-term historical averages and “rule of thumb” 8-10% returns for equities (including dividends) and the 5% or so for bonds (average returns, not “best in class”). His thesis is sound, it’s just that even the most prolific investors tend to make bold calls and then they’re wrong most of the time (I’m still waiting for all those muni bond defaults Whitney called for last year). Let’s say this is how the world plays out though – it will be quite ugly.

Life in a 5% Return World

This has a broad range of implications for retail investors, institutional investors, pension funds, endowments, states and municipalities.
For one, many people (especially the elderly, insurers, pension funds) rely on income investments. Since they’re not getting it, many have shifted their investments into riskier assets seeking higher returns. If these returns fail to appear, but carry much higher volatility, this will continue to wreak havoc not just on them, but have unintended consequences.

If pension funds are unable to achieve their already ridiculously high stated target returns of 8% or more, they will continue to appear to be alarmingly “underfunded”, much more so than they already are today. What are the implications? Well, they’ll need to either increase their target returns even further (I think they’ve played that card one too many times, using 8-8.5% in many cases while realizing closer to 5-6% over the past several years), or actually fund their obligations. That, in turn, would mean companies have to take a hit to earnings to fund their pensions, states and municipalities would need to raise taxes to cover the shortfalls, college endowments would need to fund fewer scholarships to maintain their capital and numerous other implications.
If there’s any wonder why the past two administrations went to such great lengths to save the banks, prevent a financial meltdown and boost stock prices over the past few years, the reasons cited above were the motivating factor.

With the government’s questionably realistic inflation benchmarks in the 3% range and the “real” inflation most Americans actually feel when accounting for skyrocketing healthcare costs, college tuition inflation, food costs, gas costs and more at something more like 5-6%, this scenario of maximum returns of 5% in the coming years could actually mean a generation of no “real” investment gains. Basically, even by taking on aggressive investment strategies and performing best-in-class, you’re breaking even?!?

Not exactly a rosy scenario, but one you should perhaps plan for.

What are your thoughts on future investment returns?

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It’s That Time of Year – How to Calculate Your FSA Contribution Amount for 2012

by Darwin on October 28, 2011

For those of you who have a Flex Savings Account option at work, it’s time to set the total annual allotment for 2012 before the year starts. I’ve always had mixed emotions about this provision of the tax code. On one hand, you’re allowed to deduct medical expenses from your income normally subject to federal income tax. Great. On the other hand, you have to “guess” how much you’re going to spend the next year. Reason being, if you over-estimate and set aside too much in an FSA, then you end up in a “use it or lose it” situation and if you estimate too low then you left money on the table. Therefore, it behooves you to do the best job you can in estimating out your costs and then have some contingency plans if you’re high or how. Here’s how I did it:

I hit the problem from both sides – first, in seeing what I spent last year and for the current year in deductible expenses as a baseline, then alternatively, estimating out what I see for next year. By averaging the three (perhaps giving some additional weight to next year’s projection), I come up with a reasonable estimate. We’re setting aside a seemingly high $2500 for next year for the family. People with a really good health plan and a healthy family often end up paying next to nothing out of pocket. Unfortunately, we have a large annual expenditure which isn’t covered by any health insurance or state services. One of our children requires special services which are unreimbursed, but are deductible. That ends up running about $2000 each year. On top of that, being in the 90/10 coverage plan, it’s easy to rack up another $500 throughout the year with various doctors’ visit and ER trips, not to mention medicines.

Flexibility in the Flex Spending Account

What I like to do is have some room for maneuvering later in the year, whereby I can push some large expenses into the current year or out into the next year. For instance, I intentionally have my annual eye appointment toward the end of the year, so if I need a new pair of glasses in a given year, I can decide to spend the money in the current tax year or just wait a month and push it to the next year. In years past, you were able to stock up on OTC medicines which was a good way to have some flexibility, but we lost that provision with Obama’s healthcare reform. OTC meds are no longer deductible (thanks)! However, there are some other ways to be flexible. For one, there’s a voluntary surgery I’ve been putting off for some time and I’ll time that accordingly (yes, 3 kids is enough!, so I’ll be takin’ care of business). And I can also ask my child’s therapist to bill early/late around the December timeframe to get that fee in the right year.

What is Your Annual FSA Amount and How Do You Maintain Flexibility?

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Should Americans with No Kids Be Able “Opt-Out” of School Taxes?

by Darwin on September 29, 2011

I was at a family gathering this summer and the usual topic of complaining about the ineptitude of local government officials and school boards came up. That then led to older participants questioning what their tax dollars were being used for and why they’re even paying school taxes to begin with. It led to an interesting topic of whether people should really just be taxed on what services and benefits they enjoy as opposed to their zip code and home size. There are a few ways to look at it.

A Question of Fairness

For instance, should a couple with no kids pay the same taxes as a couple with 4 kids in the public school system? Or what about parents that send their kids to private school? From the perspective of the people deriving no direct benefit from the local school system, they don’t see the point. It’s viewed as a school system that’s continually sucking more and more money out of the pockets of taxpayers for seemingly useless expenditures like iPads for students and exorbitant benefits.

Selective Memory

What was especially ironic about the cries to eradicate school taxes for people who don’t have kids in the school system was the fact that the guy’s last kid had just graduated highschool – public highschool. How convenient! I mean, of course, financially, wouldn’t it be great if we all got to pay public school taxes up until the day your kid graduates and then you just stop paying?! Timing is everything; it’s all or nothing. It’s kind of like, well, Obamacare where you can forgo having real health insurance and pay a nominal fee until you get real sick or develop a chronic issue, then just sign up. It doesn’t work right that way, human nature is too opportunistic.

It Just HAS To Be This Way

In a society where we want kids to have a future (which, in turn ultimately pay for the same seniors often slamming school taxes), where we expect people to have certain services and society to function the way we expect, we will always need to pay for some things we don’t need. I had to pay PMI on my first home even though I’ve never defaulted. I pay Social Security taxes, disability, Medicare and more even though I will probably see a negative return on my payments for the duration of my employment. I’ve always paid auto insurance even though I’ve never been responsible for an accident. There are always going to be those who give and those who take. But if none of these things existed, we’d live in a much different world – fraught with risk and human suffering where there’s no safety net. Sometimes, we need to pay for things that benefit us, our children, society, or even things that don’t seem to benefit us even tangentially – because someday down the road, you might actually need it.

You might think I’ve turned bleeding heart or something. No, I’m just pragmatic. Just like you can’t “opt out” of insurance, Social Security or other systems we’ve had in place for generations, you can’t opt out of the way we fund public education. There’s an aggregate amount required to fund schools each year and parents alone can’t bear the burden. And non-parents benefit in ways they don’t even contemplate. A vibrant local economy, jobs stemming from the school locale, and a new generation of kids that will pay for their care in old age.

What Are Your Thoughts On School Tax Opt-Out?

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I’ll Never Buy Music Again – Except Monthly :>

by Darwin on August 22, 2011

Throughout my life I’ve gone through a series of various philosophies on music listening, performance and consumption. As a kid, I was REALLY into music. I started playing guitar at about 13, went on to be in various “Battle of the Bands” and other concerts, etc. and was a voracious consumer of rock and metal music. Ironically, my guitar teacher had introduced me to “neo-classical” music which is basically Bach, Paganini and such mixed with metal. So, I was routinely spending a few hundred bucks a year on various albums, sheet music, going to concerts, etc.

Then college hit and with it, the internet was evolving to include Napster and Kazaa-type services. I’ll admit it; I dabbled. As a musician myself and a proponent of intellectual property, I felt like a bit of a hypocrite, but everyone else in my circle was doing it and it did seem kinda stupid paying $13 for an album when I only like 2-3 songs. While that was my self-justification, it was wrong. Teenagers do dumb stuff and fortunately, I was never made a poster-child by the Music Industry and sued for $1,000 per song or whatever some of those ridiculous court cases highlighted.

Once out of college, I was no longer buying albums, but listening to music primarily through my Sirius satellite radio and online streaming. I then transitioned into Pandora and have finally found the “holy grail”. Here are my opinions on the various options I’ve utilized and why I’m done searching:

Downloading: There are still various ways to get free stuff online, but there’s the ethical piece (as I get older, I tend to view this option as less and less attractive) and then there’s the hassle, viruses and such. At one point, a friend of mine showed me how he was using Newsgroups, decoding RAR files on his desktop, etc. which was a “safer” route to avoid detection, but the bandwidth was like $12/month. As you’ll see below, that’s not even necessary.

Satellite Radio: When I first got my Sirius satellite, I thought it was the best thing going. I primarily used it to listen to CNBC and Bloomberg on long drives, but the music stations introduced me to some new bands here and there as well. It had this record function too which I thought was great. As it turns out, I basically NEVER use the unit like I could have, in recording shows or music and then listening to it later. Now my iPhone and lack of time render that option useless. I still pay for Sirius but I could probably do without. The occasional 2 hour drive for work would be rough without some real-time news access, but there’s always podcasts and music.

Pandora: I was real excited about Pandora last year when I discovered it. I loved the idea of constant streaming music anywhere I was working, the ability to recommend new artists, bookmark them, etc. What I soon realized was that like any company going public, they had to show an improved financial picture before the IPO and they loaded it up with inane commercials. Next, the same 5-6 bands kept cycling through the same channels, rendering the “discovery” piece of Pandora as kind of useless. I barely use it now.

Spotify: Spotify is my final solution (I think). Basically, the music catalog is much larger than Pandora (hence why my stations kept cycling through the same artists) and with the Premium version, you can basically pick any song, artist, album you want – ANY TIME. There are a ton of other features and this isn’t an ad spot for the service, but I’ll just say it has it all and I no longer feel compelled to buy music through iTunes, CDs or otherwise. I pay a flat fee forever and that’s it.

At $9.99 per month, it’s less than the cost of an album a month, less than the monthly bandwidth charges for using newsgroups, less than satellite radio and less than the cost of a latte a week. It’s totally worth it!

How Do You Buy Music?
What Works for You?

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Are You Selling Stocks Prior to the Aug 2 Debt Limit Expiry?

Around the office, some of my co-workers are talking about how they just unloaded all their stock holdings and shifted into cash or bonds because of the impending Aug. 2 deadline to extend the debt limit. To do otherwise, assuming the government is unable to “prioritize” payments to bondholders (which would entail curtailing payments otherwise [...]

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Learnings from Advanta High Yield Notes: Investors to Get 38 cents on the Dollar

After some prolonged legal proceedings following Advanta’s collapse, there’s a new settlement whereby investors in their high yield notes will get 38% of the money owed. This follows months of warnings (April 2009, May 2009, Jun 2009 and then…boom!) from me highlighting that as the company continued to blow more and more money on ads [...]

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Everything on Earth Should Have Variable Pricing

I was reading a story the other day about how utility companies are starting to put “smart-meters” on the homes of Americans, in many cases against their will. See, the power grid isn’t very good at “storing” energy, so during the day when businesses are buzzing and everyone’s running their central air units, that energy [...]

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The Inflation Conspiracy? EAT ME

CBSMoneyWatch published a piece of screed this week on the Inflation Conspiracy pretty much mocking and patronizing people who question the value or validity of the government’s official measure of inflation. The author somewhat misrepresents the intent of mainstream inflation critics by saying they “believe that somehow there’s an inflation conspiracy going on, and the [...]

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