Category: Finance

April is financial literacy month and the month-long celebration often comes with appeals to low-income and marginalized communities that suggest the silver bullet to their financial woes is financial literacy–and it’s not. While it’s important to note that financial literacy is an important step toward sound financial decision making, it doesn’t account for those who are financially literate but impacted by behavioral issues stemming from institutional mistrust, historical exclusion, and financial traumas. The stigmas around mental health embedded within these communities also act as a deterrent, preventing its members from seeking the help they may need.

What Is Financial Trauma

While there is no set standard definition for financial trauma, financial trauma can be described as any instance observed or experienced that has a negative impact on the way someone views, interacts with, or believes about money. Most often associated with

• Major losses in income or employment
• Homelessness
• Sustained financial stress due to poverty
• Etc.

Financial trauma can also be triggered by inaccurate financial guidance or advice leading to the loss of savings, or the overleveraging of debt. This speaks specifically to the weaponizing of terms like “generational wealth” to push complex financial products and services to those without the knowledge or income to establish or maintain them. This plays on the ambitions of some to escape or put as much distance between themselves and poverty as possible.

Financial trauma and variations of the term like “money trauma” are increasing in popularity as the connection between how people think and feel about money, and what they actually do with money becomes more mainstream. While this is an important step in painting the complete picture of what overall financial wellness looks like, it often falls short of acknowledging the historical and present day impacts of racially motivated exclusion, exploitation, and abuse endured by Black people as part of a greater generational trauma. The reaction to said trauma can be enough to discourage participating in financial systems that have impacts on the way Black people think about

• Retirement and estate planning
• Investing
• Home ownership
• Responsible use of credit
• Banking relationships
• And more

The refusal to participate in these systems might seem like a lack of financial literacy on paper, but could very well be tied into the response to generational mistrust and observations passed down through family units. That is to say that the financially traumatic experience might have happened with a grandparent, but the resulting trauma response then became the norm and was passed down to the parent who then passed it down to the child.

Financial Therapy As A Solution

Finding mental health professionals with relatable experiences and education that acknowledge the lived experiences of Black people may be difficult as only 4% of therapists are Black, according to research done by Zippia on demographics and statistics for therapists in the United States. Adding in specialized training in navigating financial decision making, financial anxiety, or financial stress, shrinks that pool even further–leaving those issues unresolved or put on the back burner for a qualified professional to address later.

Acknowledging again however the historical lack of access and institutional mistrust Black people may have when pursuing financial advice or acknowledging a financial trigger to a greater mental health need, this leaves a very small opportunity to address these issues allowing them to continue festering and showing up in relationships, behaviors, and even in physical health.

Fortunately, work being done by organizations such as the Financial Therapy Association blend therapeutic and financial competencies to help people improve overall financial well-being while also curating a directory of qualified financial therapists. Financial therapy or financial counseling can help explore internalized beliefs and behaviors about money addressing

• Scarcity
• Decision making
• Goal setting
• Life events such as the birth of a child, marriage, divorce, etc
• Hardship
• And more

Examing these beliefs through the lens of a greater generational trauma allows Black people to inspect how systemic exclusion, abuse, and financial trauma likely impact financial decision making, even if viewed initially as a positive. For example, a high-income earning Black professional who experienced poverty might aggressively save as a response to financial trauma manifesting as scarcity. According to traditional views on financial literacy, this may be a positive behavior. However, viewed through a trauma informed lens this individual may be hoarding money despite having a high income and sufficient savings.

Financial therapy alone doesn’t stand in place of traditional therapy where qualified therapists may diagnose or prescribe medication, but acts as a supplement to cover gaps in financial training or specialization. It’s important to note that some qualified mental health professionals do have financial training or specialization in financial therapy, while financial therapists are not required to have the requisite credentials to diagnose or prescribe medications.

If you are having a mental health emergency, you should contact a qualified mental health professional.

Having been hit by any number of money scams, the swindles that rope people in with a fake IRS connection are probably the slimiest.

These scams pop up during tax time, but they seem to circulate throughout the year. Here’s what you need to know:

The IRS continues to see “heavily advertised promises offering to settle taxpayer debt at steep discounts. The IRS sees many situations where taxpayers don’t meet the technical requirements for an offer, but they had to face excessive fees from promoters for information they can easily obtain themselves.”

“Offer in Compromise” mills highlight the Dirty Dozen series of the worst scams that use the IRS in their schemes. “Offers in Compromise are an important program to help people who can’t pay to settle their federal tax debts. But “mills” can aggressively promote `Offers in Compromise’ in misleading ways to people who clearly don’t meet the qualifications, frequently costing taxpayers thousands of dollars.”

How do you avoid these ruses? A taxpayer can check their eligibility for free using the IRS’s Offer in Compromise Pre-Qualifier tool.

“Too often, we see some unscrupulous promoters mislead taxpayers into thinking they can magically get rid of a tax debt,” said IRS Commissioner Danny Werfel.

“This is a legitimate IRS program, but there are specific requirements for people to qualify. People desperate for help can make a costly mistake if they clearly don’t qualify for the program. Before using an aggressive promoter, we encourage people to review readily available IRS resources to help resolve a tax debt on their own without facing hefty fees.”

College acceptances are in hand. Now comes the hard part: before a May 1 decision deadline, students and their families must figure out how much each school would actually cost them and which they can afford.

When Maddie, an aspiring architectural engineer, was a high school senior in Rochester, N.Y., college admissions experts assured her parents she was an ideal applicant. She was “in a million extracurriculars, top of her class, and entering a male-dominated field,” says her understandably proud mother, Jennifer. Sure enough, by this time last year, acceptances from Maddie’s top choices, including Northeastern University, Syracuse University and Worcester Polytechnic Institute, had rolled in.

Then came the bad news: follow up financial aid award letters laying out the $80,000 or so total annual “cost of attendance” for each of those private colleges and the not-big-enough merit scholarships Maddie was being offered to defray some of those daunting price tags. The bottom line (a.k.a. the net cost of attendance) came in at more than the family could afford.

“As soon as she saw the number, depending on her mood, sometimes she rolled her eyes and laughed, and sometimes she burst into tears,” recalls Jennifer, who requested we not use the family’s last name. “You’ve heard your whole adult life that there are certain kids whose parents make them pay their way through school—but banks are not going to let them take out $75,000 in loans. The parents have to put their names on those loans,” she points out. “Here we are, ready to retire, and we have to take out mortgage-sized loans?”

For some high school seniors and their parents, April really can be the cruelest month as buckets of cold financial reality are thrown on collegiate dreams. Usually, families have until May 1 to decide on a school and send in a down payment towards what will be one of the biggest expenditures of their lives. It’s a choice that could require taking on big debt and affect other life-defining choices (about career, homeownership, children and retirement) for decades.

The decision making process is even more of an ordeal because financial aid award letters are not standardized, often incomplete, and sometimes downright misleading, making it nearly impossible to compare offers side-by-side without extra calculations and research.

Maddie is now finishing her freshman year at the public University of Cincinnati. Its cost of attendance for out-of-state students is around $47,000 a year—a lot less than her first choices. Meanwhile, her high school junior brother, after watching Maddie’s experience, is focusing his college search on State University of New York schools. Undergraduate tuition for New York residents at the system’s four-year colleges is currently $7,070 per year, with the total cost of attendance coming in at $23,740.

GIVE THAT COLLEGE AID LETTER AN “F”

To help other families navigate through this mess, Forbes spoke with financial aid experts to get their best advice for deciphering financial aid award letters and appealing for more aid when appropriate. High school juniors now beginning the college search can use the Department of Education’s College Navigator Tool and its College Affordability Transparency Center to research both gross and average net costs, based on income level, at specific schools. But keep in mind, your individual results could vary, so don’t write off applying to a school that suits you academically, based on those tools alone. A wealthy school able to fully meet a lower income family’s financial needs could end up costing less than a cheaper school with a small endowment.

Here’s a step-by-step guide for high school seniors.

Find Your True Cost of Attendance

It’s essential to know your individual net price of attendance for each institution you’ve been admitted to so you can compare your options, figure out whether your family can swing the price and get a read on how much debt you might end up with—and whether that burden is worth it to you. Sadly, colleges don’t make such comparisons easy, since most don’t follow best practices (as defined by the Department of Education) in their financial aid award letters, according to a report last December from Congress’ Government Accountability Office.

Start with the gross cost of attendance. That includes tuition, mandatory school fees and room and board, as well as textbooks, transportation costs and an allowance for other personal expenses.

To get your individual net price, you would then subtract any grants or scholarships being offered. But the net price, the DOE says, should not include loans, which will have to be paid back, or work-study awards, which come with their own strings attached, including the fact that the student must work for pay, taking hours away from studying, other paid employment, or projects (such as scientific research or internships) that might be important for that student’s future career or grad school application.

Families often must calculate the net price themselves, and may need to scour a school’s website and even call the college financial aid office to extract additional information. Four in ten colleges don’t include a net price in their financial aid letters at all, and another 51% of colleges include a net price, but actually understate it by factoring in loans, according to the GAO report. Put another way, only one in ten colleges owns up to the true net price, as the government defines it. (Quibble with the government’s definition if you want, but there’s no question that families would have an easier time making a decision if every college followed the same accounting rules—just as public companies are supposed to follow certain rules when presenting their earnings.)

Only one in ten college financial aid letters owns up to the true net cost for a family. Others leave some expenses out, mislabel loans as “aid” or ignore costs completely, while touting a scholarship award.

“Students and their families are at a disadvantage from the get-go,” says Melissa Emrey-Arras, director of the GAO’s Education, Workforce and Income Security team. “They’re getting offers that aren’t providing all the information that they need.”

It’s not just net cost, but any information at all about cost that’s lacking sometimes; one in five financial aid letters reviewed by GAO didn’t provide any cost information, Emrey-Arras reports. “It’ll be like ‘Congratulations, you’re getting the scholarship.’ And then you think ‘Oh my gosh, I’m getting the scholarship. That sounds great.’ But if you can’t figure out how much you owe [after the scholarship], you can’t make an informed decision about whether you can afford to go to that college,” she says. “You could get a scholarship that is a lot of money, but then the tuition and the other costs could be so high that it might be actually cheaper for you to go to a different school.”

Even colleges that provide a full breakdown of all your costs may lowball expenses in certain areas. Colleges often underestimate textbook prices, says Mark Kantrowitz, a financial aid expert, Forbes contributor and author of several books on paying for college. “I’ve seen examples where the college says ‘Oh, your textbooks for the entire year will cost you $250,” Kantrowitz says. “But it depends on the particular field of study. A single chemistry textbook can cost you $250.” His solution: average the textbook estimates from all of the colleges you’re considering, and use that as a standard. So if one college says textbooks will cost $250 per year, another says textbooks will cost $1,000, and a third quotes $700, assume (for purposes of comparison) that textbooks at any of the institutions will be around $650 per year.

Transportation costs are another area where you can’t really rely on the numbers in a financial aid offer. “Transportation costs are going to differ based on where you’re coming from and where the college is located. If it’s in your backyard, your travel expenses are a lot lower than if you’re flying halfway across the country,” Kantrowitz says. “Also, how many trips home from school are you going to do? Are you going to come back every break—spring break, summer break, Thanksgiving break and winter break? Or are you just going to go home once?”

Understand Aid Types and Traps

Rochester financial aid advisor Liane Crane tells families to look for four key figures in colleges’ letters: merit scholarships, grants, loans and work study offers.

Merit scholarships, usually awarded to students who demonstrate outstanding academic achievement or excel in other disciplines like the arts or athletics, are often listed on award letters as “presidential scholarships” or under other institution-specific names. Essentially, these are discounts on a college’s list price that are not based strictly on a family’s financial need (although some colleges do take into account how likely an award is to swing a student’s decision).

Merit aid frequently comes with strings and a gotcha. One common string: a student may have to maintain a certain grade point average to get their merit scholarship renewed each year or semester. That’s understandable. But then there’s this gotcha: some merit aid is front-loaded, meaning that the college will grant the scholarship during the student’s first year, and later will reduce the award or won’t offer it at all, regardless of how well a student does in school. If it’s unclear whether a scholarship will be awarded for all four years of undergraduate schooling, students should call the financial aid office and ask explicit questions, Crane says. Getting it in writing doesn’t hurt either. Another way to judge whether a school will renew its merit aid is to look at College Navigator to see the average aid provided to freshmen versus all students. If the freshman aid is higher, that could be a tipoff that the school is frontloading its merit aid.

Grants are discounts based on a family’s financial need and include federal Pell Grants of up to $7,395 for low income students and discounts or scholarships that the university (and/or its donors) are supplying based on a family’s financial need. A family’s need is calculated by the Free Application for Federal Student Aid (FAFSA), and also, in the case of a few hundred pricey private schools, the College Board’s CSS Profile form, which asks for additional information, such as parents’ retirement savings and equity in the family home. (Users of the CSS form include Harvard, MIT, Stanford, the University of Pennsylvania and Yale.)

The information on these forms are used by schools to calculate your expected family contribution—that is, the amount they believe you and your parents can pay out of pocket each year from your income and by dipping into your assets, including 529 college savings accounts and other assets in either the parents’ or a child’s name. If a school advertises it meets the full financial need of students, what it means is that its aid package covers everything but your EFC. Whether a family can actually come up with that EFC without a lot of hardship is another matter.

Parents can borrow the balance needed to pay college costs through federal PLUS loans. They should be wary. These loans carry relatively high interest rates and origination fees and parents who default could have part of their Social Security retirement benefits withheld.

“Parents might be under the illusion that they’re getting all this free money, but it could change,” Crane warns. If a family’s financial situation changes significantly while their student is in college, it could reduce, or increase, the grant money the student receives. One common change you might not think about: the number of college students you’re paying tuition for. For example, your younger child might see their need based aid reduced after an older sibling graduates.

Crane cautions students and parents not to be too enamored by the grant and scholarship totals—what’s important is the overall net price. “I’ve had many conversations with parents who say ‘They’re going for free’ or ‘They gave them $20,000 and this is a better deal,’ but the school costs $20,000 more” than the others, Crane said.

Work-study awards require a student to find and keep a job on campus, and work the number of hours required by the program in order to meet the total listed on the award letter. For some students, this can be difficult to maintain as their course load increases. It’s also important to know that in order for the work-study award to match what it says on the letter, the student must put their paychecks entirely towards college expenses.

Student loans are perhaps the most difficult piece to work through, since colleges list a variety of loan options and don’t use standard terminology to describe them. College financial aid letters can be intentionally misleading; A 2018 report by New America discovered that colleges used 136 unique terms to describe the Federal Direct Unsubsidized Loan, and 16 of those terms didn’t even include the word “loan.” Some colleges referred to the federal loan as “Fed Direct Unsub L,” “Direct Unsubsidized,” or simply “Unsubsidized.”

“It is deceiving,” Crane says. “People [don’t] understand it is a loan and money that needs to be paid back.”

There is a strict limit on how much in direct federal loans an undergraduate can take out a year—it’s $5,500 for freshmen who are dependents of their parents. The interest rate on these loans is fixed, but each year it’s adjusted for new loans. For example, new undergraduate loans issued between July 1 2022 and July 1, 2023 carry a 4.99% rate, up from 3.73% the year before.

Some colleges also include parent PLUS loans—unsubsidized federal loans made directly to the parents of undergraduate students, which can be as large as the net cost of attendance—as part of financial aid they say is reducing (or even zeroing out) the net cost. The New America study found that 15% of financial aid letters deceptively referred to these PLUS loans as “awards.” Fred Amerin, founder of PayForEd, a company that offers software to help employers and families navigate student loans, says that any PLUS loans included in an award should be subtracted when you are comparing the net cost. “Really it’s a finance option of $20,000 or $30,000,’’ he says. In some cases, colleges will also include a private loan option in their financial aid packages.

Note that PLUS loans carry a far higher interest rate and stiffer fees than loans made directly to undergrads. The current rate on these loans is 7.54% and 4.23% of each loan amount is kept by the government as an origination fee, compared to an origination fee of 1.06% on direct loans made to undergraduates.

Experts advise parents to be especially wary about taking out loans right now while interest rates are so high. “Pre-Covid we saw the federal student loan rates coming down, and usually private loans follow suit. And then Covid hit and they went up, but people really weren’t aware because of the [Covid related student loan repayment] pause,” Crane says.

Americans owe a stunning $1.8 trillion on student loans–more than they owe on their cars, for example. Among the fastest growing categories of student debtors are Parent PLUS borrowers. A Century Foundation report last year called parents the “hidden casualties” of the student debt crisis and noted that tens of thousands of parents who defaulted on these loans have seen part of their Social Security retirement or disability payments withheld by the government.

Need More Aid? Ask

Yes, a student can—and should—negotiate with their prospective colleges for more aid if they need it, financial aid experts advise. This negotiation process is typically called an appeal, and a student’s case is much stronger if they can show the college that their financial situation isn’t accurately captured by the FAFSA or other financial documents, says Kantrowitz, who wrote a book called “How to Appeal for More College Financial Aid.”

“It’s not like bargaining with a car dealer, where bluff and bluster is going to get you a bigger, better deal. It’s mostly driven by special circumstances, which are financial circumstances that affect your ability to pay,” Kantrowitz says. “Financial aid is based on two-year-old income information from the prior year. What if your income has changed? What if your parents lost their job? … Your parents might have high dependent care costs for a special needs child or elderly parents, or high unreimbursed medical and dental expenses that are presumably ongoing.”

An appeal for more financial aid might be successful—particularly if you can show your finances have worsened. “It’s not like bargaining with a car dealer, where bluff and bluster is going to get you a bigger, better deal. It’s mostly driven by financial circumstances that affect your ability to pay,” says college aid expert Mark Kantrowitz.

Colleges often budget for some successful appeals, so it’s always worth an ask, Crane says. In addition, some schools may be worried about summer melt—a phenomenon where current and admitted students withdraw before the fall semester—and may give out more aid to those who ask just to keep their enrollment numbers up.

In addition, if a student misses the cut-off for a merit scholarship before the application deadline, but later improves their test scores, they should appeal for merit aid, Kantrowitz advises. “The reason why colleges offer these academic scholarships is to try to improve their profile by raising their average test score,” he says. “They don’t care if your test score was above their threshold before the admission deadline or afterwards because they still benefit from it.”

MORE FROM FORBES

Before our son was born, my wife and I used to spend a ton of time boating and wakeboarding on the lake near
near
our house. The thing I didn’t realize about boating is that there’s an extremely high percentage of self-made millionaires and multimillionaires on the water. The joke with boaters is that B.O.A.T. stands for “Bust Out Another Thousand,” so this makes a lot of sense. But one of the most transformative things about meeting some of these incredibly successful people was learning how they think and approach life.

I bought my boat about two years after I paid off my student loans and quit my teaching job to blog full time. I wasn’t rich and was still working my way to success, so getting close to those millionaires felt like I was joining a secret mastermind group where everyone had 100 times more experience and business savvy than I did.

Now that I’m in the process of selling my boat, I’ve been feeling a little nostalgic about my time on the lake and what I learned. Honestly, those lessons have had a profound impact as I build my business, optimize my time and money, and improve my overall mindset, and I’m excited to share them with you today.

Lesson #1: They Are Willing to Take Risks

More than just
just
taking risks, successful people take calculated risks. They think about their exposure to risk and weigh it against the potential of reward, and they’re prepared to accept the outcome if they fail, whether that is starting a business that ultimately flops or trying out an investment strategy that doesn’t yield impressive returns.

I think a lot about risk and reward in terms of when I quit teaching. My site had earned hardly anything, and I had just taken this massive leap by quitting my job. Because blogging is a slow business model, I quickly learned that I needed an alternative source of income and taught myself how to run Facebook ads for some local businesses. The incredible thing is that in about six months, I was out-earning what I made as a teacher and ultimately parlayed my digital marketing skills into a wildly successful digital marketing course and second business that I built with my good friend Mike Yanda.

That’s the short version, and it took a ton of hustle to make things work. But I think I’m a smarter and more successful person because of that.

After that decision, I realized that success and failure aren’t the only options when you take a risk — you can also learn something new about yourself, discover a new skill, and end up where you’re meant to be.

The point is that successful people understand that the potential for reward is far better than doing nothing at all.

Lesson #2: They Know Money Can Buy Happiness

Several years ago, I was hanging out on my good friend’s Sea-Ray 460 (think: big, expensive boat), and I mentioned that money doesn’t buy happiness. His response changed my view on that completely. He said, “Money by itself can’t buy happiness, but it can buy or produce things that make you happy.”

He meant that money can lead to early retirement, a sweet boat, a nice house, vacations, financial security, etc.

What’s more interesting is that research shows that money certainly does lead to happiness for many people. New research from Matthew Killingsworth, Daniel Kahneman, and Barbara Mellers shows that larger incomes provide a greater sense of happiness for most people.

Since that conversation with my friend, my income has grown significantly, and I can attest that I do feel more overall satisfaction with my life. I know my family has what they need. We can go on some pretty awesome vacations, and I don’t feel stressed out about sudden expenses.

Money isn’t everything, but it sure helps!

Lesson #3: They Shamelessly Self-Promote

There is nothing wrong with being humble. It’s actually a wonderful trait, but if you’re humble to the point that nobody knows what you’re capable of, then you’re doing yourself a disservice.

One thing I’ve noticed about successful people is that it doesn’t take too long to figure out what makes them great at what they do. Either they will talk about it, or the people they know will do it for them.

If you struggle with talking about yourself, think about it this way: there’s probably someone out there who could benefit from knowing more about what you do. Maybe your story will motivate someone else to take a leap, or you can offer guidance to a friend. It’s also an excellent way to build a network of like-minded people.

Lesson #4: They Know How To Sell

The reality is that if you want to make money, you generally need to learn how to sell products or your own skills to progress in your career. For example, I’m terrible at selling in the “traditional” way. Maybe it’s because I’ve always preferred a blunt approach to the style of sales-talk that comes off as misleading or fake, and I’m definitely not extroverted or high energy enough to be a salesperson.

However, learning how to sell on my site was imperative. The same went for learning how to sell my marketing services. I just found a way to do it that I enjoy.

If you aren’t an entrepreneur, you still have to learn how to sell your skillset and show why you’re a producer at your company instead of a consumer.

Lesson #5: They Don’t Rely On Luck

There are a lot of stories online about people who make $1 million plus a year and only work five hours a week. To the casual browser, these stories appear fake or like the person is simply lucky.

The truth is that I know people who have found financial success and work far less than the average person. But they got to that point by working over 80 hours a week, working multiple side hustles, taking massive risks, etc. Because most people can’t fathom that reality, it’s easier to assume that luck is responsible for someone’s wealth or success.

The problem with that assumption is that you limit your own potential. You’re telling yourself that you have to catch a break to make it, and I truly believe that anyone can build the life they want.

Sure, some people have an advantage when they start, but if you want to be wealthy, be your own boss, and reach the kind of success you want, you have to accept that it takes a considerable amount of work to achieve it.

Lesson #6 They Surround Themselves With Successful People

If there’s a skill you want to get better at, spending time with people who excel at that skill is one of the best ways to advance yourself. And I believe that’s true for more than just golf, pickleball, or any other hobby or sport.

Being near successful people naturally happens as you become successful, but you can take advantage of conferences and networking events in the beginning. And don’t forget about podcasts, articles, and books! It’s about steeping yourself in that world, and the reason this works is that you’re learning the jargon, getting insider tips, understanding the mindset, and learning practical steps to become the person you want to be.

Finding a mentor or a friend who’s accomplished what you want is even better. This gives you the chance to be around successful people as often as possible and listen closely, ask questions, and learn.

In my opinion, there are a ton of factors that go into making someone a “success.” And we all have our own versions on what success means. It can be debt freedom, starting a business, reaching $1 million in investments, or something entirely different.

What I have tried to do is very closely observe how these people act and then apply it to my own projects and life. I feel pretty confident that my online business will be successful because of it (and some could argue that it already is).

The United States Senate voted Wednesday to terminate a COVID-19 pandemic ​national emergency order which had recently been extended by President Joe Biden. The CARES Act was set to expire on May 11, 2023 but with Biden expected to sign this law, will mean it will expire sometime in early April 2023.

According to a statement that the Biden administration made to Roll Call, “The President strongly opposes H J Res 7, and the administration is planning to wind down the COVID national emergency and public health emergency on May 11,” a White House official said Wednesday. “If this bill comes to his desk, however, he will sign it.”

The CARES Act defines “covered emergency period” as “the period beginning on the date on which the President declared a national emergency under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the Coronavirus Disease 2019 (COVID-19) and ending on the date that is 30 days after the date on which the national emergency declaration terminates.”

The Bill itself is very short, only one sentence, which states, “Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That, pursuant to section 202 of the National Emergencies Act (50 U.S.C. 1622), the national emergency declared by the finding of the President on March 13, 2020, in Proclamation 9994 (85 Fed. Reg. 15337) is hereby terminated.”

The Bureau of Prisons’ (BOP) Office of Public Affairs provided a statement regarding this new Bill that “… the “covered emergency period” begins the date the President declared a national emergency with respect to COVID-19 and ends 30 days after the date on which the President terminates the national emergency.” Thirty days after the the signing of this law by the President, sometime around May 11, 2023, CARES Act home confinements will no longer be allowed, ending one of the most successful programs of prisoner integration back into society.

CARES Act allowed over 12,000 prisoners, mostly minimum security, to serve their prison term on home confinement under strict conditions. Of those, many have completed their sentences successfully and few of the total on home confinement violated to return to prison. It demonstrated that many prisoners could successfully complete their sentence outside of a prison setting, an expensive proposition that costs tax payers over $120/day per prisoner.

Home confinement as a part of a federal prison term has been around for decades. In fact, prior to CARES Act, most all prisoners could have up to 6 months of their sentence served on home confinement. Again, most prisoners who get to those final days or months of home confinement rarely violate the conditions and successfully reintegrate back into society.

The BOP stated in a previous article that it was not slowing CARES Act home confinement in these waining days of the program. However, one prisoner at low security prison, FCI Elkton (Ohio) said that their facility has noted a marked decrease in those who are placed on CARES Act home confinement. The prisoner stated “I am here to tell you that the agency is responding to inmates completely contrary to how they’ve responded to you [based on previous article written by Pavlo].” For all of the CARES Act successes, a review of the program, which will ultimately occur, will assess the equity with which the BOP used its authority. Many prisoners who were approved for CARES Act have told me that they received a denial but no real explanation for that denial. Others, with the support of a case manager and warden, were denied by Central Office, most likely from interference from prosecutors who have a renewed interest in keeping prisoners in institutions for as long as possible.

We all realize that COVID-19 is slowly slipping into history, thankfully, and life can resume to what we knew in 2019. However, the lessons learned from the emergency period should be applied to a post-COVID-19 world, and that should include criminal justice. Prisoners can be sentenced to a term of incarceration but COVID-19 provided a view of what alternatives can look like. It may be up to Congress to enact something similar to CARES Act home confinement that will permanently allow the BOP to determine where a prisoner serves the sentence, including home confinement.

SFG Commercial Aircraft Leasing, Inc. won a judgment against Montgomery Equipment Company, Inc. and Dr. A. Thomas Falbo for about $1.65 million. To enforce the judgment, SFG moved in the U.S. District Court for the Southern District of West Virginia for the entry of a charging order against Dr. Falbo’s interests in five West Virginia LLCs. All this lead to what appears to be the first legal opinion in West Virginia concerning charging orders, and an interesting one at that in the case of SFG Commercial Aircraft Leasing Inc. v. Montgomery Equipment Co., 2023 WL 2447469 (S.D.W.Va., March 10, 2023).

The Court found that Dr. Falbo indeed held interests in the five LLCs, and thus granted the core of the charging order without much discussion. The charging order required each LLC to redirect to SFG’s counsel all the distributions that Dr. Falbo would have otherwise received. That part was simple, and frankly mundane.

Where the opinion gets interesting is SFG’s request for certain additional provisions to be added to the charging order. This request sought two things. First, SFG sought to enjoin the LLCs from transferring any property in which Dr. Falbo had an interest. Second, SFG wanted an accounting from the LLCs of all the distributions that were going to be made, or could have been made, by the LLCs to Dr. Falbo’s interest.

As to SFG’s request for an injunction, the Court noted that a member of LLC only holds a distributional interest (as an aside, also called an “economic interest”), meaning that the member is entitled to distribution according to the member’s ownership percentage. But the Court noted that is very different than the member having any right to the property of the LLC. Giving SFG an injunction over the five LLCs’ property, the Court continued, would interfere with those LLCs’ ability to pay its own creditors, and thus would be tantamount to giving SFG a priority lien over the LLCs’ assets to the detriment of the LLCs own creditors. Concluding that such went beyond the vehicle of the charging order, and would unfairly advantage SFG over these other creditors, the Court denied this request.

Moving on to SFG’s second request, which was for an accounting, the Court noted that creditors have often had more luck in getting financial information out of an entity whose interest has been subject to a charging order. The Court noted that other courts had approved similar requests for information about distributions that were being made to a debtor’s interest in an LLC or partnership. The Court thought that causing the LLCs to make disclosures about distributions was necessary to give teeth to the charging order, and thus required the LLCs to make quarterly accountings of all distributions that had been made to Dr. Falbo. This ruling was to distributions which the LLCs had made, past tense, but did not extend to future distributions.

As to future distributions, the Court found that SFG’s request was overly vague in terms of what SFG really wanted. The Court pointed out that with an LLC (or partnership), a distribution doesn’t come into existence until the LLC itself decides to make the distribution to the members, and so a future distribution is more of an idea than something that actually exists ― and therefore cannot be accounted until the distribution actually happens. Thus, the Court denied SFG’s request for an accounting for future distribution, albeit the denial was without prejudice in the event that SFG could fashion a better argument.

With all that, the Court issued the charging order with the additional provision regarding past distributions mentioned above.

ANALYSIS

The information rights of a creditor that holds a charging order, if indeed such a creditor has any rights at all, is a difficult area. To illustrate this difficulty, a good place to start is in § 502 of the Uniform Limited Liability Company Act (“ULLCA” or as revised “RULLCA”), which provides for the transfer of a transferable interest in an LLC. This is the section which immediately precedes the charging order section, being § 503, and one simply cannot make any sense out of § 503 unless one first understands what happens with a transferable interest under § 502.

Please note throughout that the basically the same things happen with partnerships under their analog statutes, but we’ll just stick with LLCs for now because it makes it easier to write about.

A “transferable interest” under § 502 is essentially the member’s interest in an LLC. That interest can either be voluntarily assigned, such as when the member sells an interest or makes a gift of the interest, or involuntarily assigned such as through a judicial sale. Section 502(a)(3) states that a transfer does not entitle the transferee to “have access to records or other information concerning the company’s activities and affairs.”

There are two exceptions where a transferee will have such information rights, being upon the death of the member (the member’s estate gets limited rights under § 504) and where the LLC is being wound up, under § 502(c), but neither of those concern us here.

What does concern us is that § 502(a)(3) basically says that an LLC can quite lawfully tell a transferee seeking information about the LLC and its activities to go pound sand, unless of course the other members vote to make the transferee a member. In the case of a creditor of a debtor/member, this latter is highly unlikely, and thus a non-admitted creditor does not have any rights to information under § 502(a)(3).

If you think this analysis should end the problem, you’d be wrong. Let us know turn to the charging order section (§ 503) to find out more. So, let’s look at § 503, and particularly § 503(a) which provides in relevant part that

“a charging order constitutes a lien on a judgment debtor’s transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor.”

The above passage is the muscle of the ULLCA’s charging order provision. When a court grants a charging order, the creditor gets two things: (1) a lien on the interest; and (2) an order requiring the LLC to divert to the creditor any distributions that would otherwise have been paid to the debtor/member. But what is missing here for our purposes?

What § 503(a) specially does not accomplish is to make the creditor a “transferee” of the debtor/member’s interest in the LLC such that § 502 (dealing with transferable interests) would be implicated. Instead, the creditor is essentially no more than a mere lienholder with a right to payment of the distributions, but is not a “transferee” of the interest. Note that there is a fly in the ointment of this analysis, but we’ll come back to that later.

Now, if the creditor forecloses on the lien under § 503(c), then the purchaser at the ensuing judicial sale (not necessarily the creditor) will become what amounts to an “involuntary assignee” and thus a “transferee” under § 502, and at that time then § 502 will become relevant. But at the charging order stage, the creditor is not a transferee and thus § 502 is not applicable, again subject to the fly in the ointment below.

Before the creditor forecloses, however, the creditor might be able to get the court to enter an order forcing the LLC to give information to the creditor under § 503(b)(2), which provides as follows:

“(b) To the extent necessary to effectuate the collection of distributions pursuant to a charging order in effect under subsection (a), the court may: … (2) make all other orders necessary to give effect to the charging order.”

This, of course, is sort of a “generic powers” provision frequently given to the courts in various statutes which basically says that the court can do whatever common sense requires to give teeth to an order of the court, or to a charging order specifically in this case. Indeed, this is the provision on which the court in the SFG opinion used to grant SFG information rights to past distributions.

The bottom line is that prior to a creditor foreclosing on a charging order, a court may use its generic powers under § 503(b)(2) to grant information rights to a creditor. Once the creditor has foreclosed and the purchaser has become a transferee under § 502, however, then that purchaser has no information rights under § 502(a)(3). This is yet another reason why a creditor that forecloses on a charging order lien is theoretically at least a little worse off than if the creditor never foreclosed at all.

I do want to return to the fly in the ointment of this analysis, which is found in the opening clause of § 502(a) which points to a “transfer, in whole or in part”. The problem here is that the court order requiring the debtor/member’s distributions to be re-directed to a creditor is susceptible to the interpretation of a “transfer … in part”. I am not aware of any court which has yet addressed this issue, but ultimately some court will have to decide the issue. The import is this: If a court determines that a creditor that is now receiving a distribution has received a “transfer … in part”, then § 502(a)(3) becomes operable which blocks the creditor from having any right to information. If not, then the creditor may still be able to obtain an order for the information rights under § 503(b)(2).

There are two other salient points worth discussion here.

The first point is that while a creditor might not be able to get information directly from the LLC, the creditor is entitled to get from the debtor whatever information the debtor can get from the LLC, and that is everything. So, even if a creditor cannot get a court to compel the LLC to hand over information directly to the creditor, the creditor should be able to get an order which compels the debtor to get information from the LLC and then turn that over to the creditor ― such orders are routine in post-judgment enforcement. In the vast majority of jurisdictions, creditors are also able to obtain the debtor’s tax returns, and this would include the Form K-1 given to members at the end of the year which detail the distributions made to the member. This is an example of how in post-judgment enforcement proceedings there is often another way to skin the cat.

The second point is that a charging order is not only binding upon the LLC but is also binding upon the debtor/member. So, even if a creditor cannot get information about distributions directly from the LLC, if the debtor/member receives a distribution that should have been made to the creditor, then the debtor/member must either immediately turn over that distribution to the creditor or else face the risk of contempt proceedings for violating the charging order.

All this may seem mundane to most readers, but it is often the nuances of how creditors are able to get information and tie up the debtor’s ability to get cash that dictate the timing and value of a settlement. Resolution of this issue can thus be very important in real life litigation.

Apple’s Buy Now, Pay Later Plan Launches, Allowing Users Loans for Purchases

Apple launched Tuesday Apple Pay Later, a buy now, pay later feature that allows users to split purchases into four payments over the course of six weeks. For now, the service will be available only to randomly selected users who will get early access to a prerelease version of Apple Pay Later. Apple plans to offer the feature to all eligible users in the coming months. Apple Pay users will be able to apply for Apple Pay Later loans of $50 to $1,000, which can be used for online and in-app purchases on their iPhone or iPad. [USA Today]

Credit Card Debt Is at Record High as Fed Raises Rates Again

As the Federal Reserve raises interest rates again, credit card debt is already at a record high, and more people are carrying debt month to month. The Fed’s interest rate increases are meant to fight inflation, but they’ve also led to higher annual percentage rates for people with credit card debt, which means they pay more in interest. The Fed announced last Wednesday that it would increase rates another quarter of a point. With inflation still high, people are leaning on their credit cards more for everyday purchases. 46% of people are carrying debt from month to month, up from 39% a year ago, according to Bankrate.com. Data also shows more people are now falling behind on payments. [Associated Press]

Florida Governor Ron DeSantis Introduces State Legislation Banning CBDCs

Florida Governor Ron DeSantis proposed legislation on Monday that would ban central bank digital currencies from the Sunshine State, portraying it as a measure to safeguard Floridians’ financial privacy. The legislation would prohibit in Florida any CBDC that the U.S. Federal Reserve could introduce and any created by a foreign government, outlawing the technology entirely from being used as a form of money within the state. [Decrypt]

What Happens to My Credit Card Account if the Issuing Bank Shuts Down?

In the event of a bank failure, the Federal Deposit Insurance Corporation typically steps in and takes over the institution. The FDIC keeps the operations of the failed bank ongoing, including its credit card business. In the meantime, the regulatory authority would look for a buyer for the failed bank. You should keep up with your bank’s website for any updates on your credit card account. If a buyer emerges, the failed bank’s credit card portfolio would be transferred to the acquiring institution. This buyer would then become the new issuer of your credit card and set the terms of your account. The new issuer might change your interest rate on new transactions, for one, after giving you 45 days’ notice. It could even change the interest rate on your existing balances in certain circumstances, as well as your credit limit after giving you sufficient notice. You might even get a new card under a different brand name. [Yahoo Finance]

CFPB Officially Takes Aim at Credit Card Late Fees

On March 29, the CFPB published a proposed rule in the Federal Register to amend Regulation Z, which implements the Truth in Lending Act, to limit late fees charged on credit card accounts. If adopted, amended Regulation Z would adjust the safe harbor dollar amount for late fees to a flat $8, down from the current safe harbors of $30 for a first violation and $41 for a second violation within six billing cycles. It would also provide that late fee amounts must not exceed 25% of the amount of the required payment deemed late. [Lexology]

Walmart Wants to Buy Back Your Old Electronics Turning Your Junk into Walmart Gift Cards

Walmart has recently launched its Gadgets to Gift Cards program, an innovative way to dispose of used electronic devices that reduces the amount of waste in landfills. If you have old cell phones, tablets, video games, consoles, laptops, GPS devices, MP3 players, and cameras you don’t have any use for, you can trade them in by filling out an online appraisal form. Then, you pack up your items following the directions given to you by the Walmart CExchange program, and ship them away for free. Once your package is received, Walmart will appraise your devices in about two to four weeks, where you will then be paid however much the item is worth. Though they can’t pay you in cash, Walmart offers a Walmart eGift Card that will allow you to use the funds on Walmart.com or on Samsclub.com, if you’re a member. [Cord Cutters News]

Rocket Mortgage Launches a Credit Card to Help You Save For or Pay Off a Home

The new Rocket Visa Signature Card comes with a rewards system that’s hard to decipher at first glance. While advertised as a cash-back card, the card offers 5X Rocket Rewards points on all purchases. The value of your rewards will depend on how you redeem them. Your points are worth 1 cent each when redeeming towards down payment and closing costs with Rocket Mortgage (up to $8,000 in rewards), so you’re essentially earning 5% cash back on all purchases if you use your points this way. Or your points are worth 0.4 cents each when redeeming towards Rocket Mortgage loan principal. In this case you’re effectively earning 2% cash back on all purchases. Your points are worth 0.25 cents each when redeeming towards a statement credit, meaning you’re earning 1.25% cash back on all purchases. [CNBC]

Why and How Are Virtual Cards Disrupting the Finance Industry

Virtual cards to the finance industry are what mobile phones were to the telecommunications industry. In 2022, the virtual card market size was $411 billion. By 2032, this valuation is expected to shoot up to a staggering $1.3 trillion. Virtual cards carry the potential to change the way you spend. Here are some reasons why. Transacting using virtual cards is not only faster and seamless but also secure and convenient. Virtual cards are widely accepted: over 39% of businesses in the US use virtual cards to make B2B payments. Virtual cards are environmentally friendly. [Finance Feeds]

Buy Now, Pay Later Could Become a Multi-Trillion Dollar Business

The market for buy now, pay later, an alternative to credit cards whose popularity exploded during the pandemic, could surge to nearly $3.7 trillion by 2030 as more consumers take advantage of ways to pay for goods and services in interest-free installments instead of lump sums. That’s according to Straits Research, which puts the market at $132 billion now. As of last year, 360 million people around the world used BNPL, a number that could almost triple to 900 million by 2027, according to Juniper Research. While growth projections vary widely, BNPL is expected to record a compound annual growth rate between 20% and 45% through the end of the decade. PayPal dominates the market with four times as many users as the next largest BNPL provider. [Investopedia]

Cryptocurrency Outlook Picks Up Amid Bank Crisis

After a roller-coaster year filled with arrests, speculation, scams, bankruptcies and billions in value lost, cryptocurrency market experts could hardly wait for boring times. Then Silicon Valley Bank hit the skids, and financial markets were thrown out of whack. For cryptocurrencies, particularly bitcoin and ethereum, the 2023 bank panic has been a net positive. The bitcoin price, already up strongly to start the year, recently moved to around $28,000. That’s its highest level since June, before Sam Bankman-Fried’s FTX exchange started to melt down. Ethereum is trading above $1,700 and near September highs. [Investor’s Business Daily]

Credit Card Spending Topped $13 Trillion Last Year

Global spending on credit cards last year rose to more than $13 trillion across in-store and online checkout, according to an annual report from Fidelity National Information Services. FIS attributed the rise to more sources of credit, including digital wallets loaded with credit cards, buy now, pay later options and point-of-sale financing offered by fintechs, banks and merchants. Facilitated by real-time payment rails, account-to-account payments are becoming a more popular payment method globally. Global account-to-account transaction value was about $525 billion last year. [Payments Dive]

Yes, You Can Put Your Taxes on a Credit Card

It turns out it is possible to put your federal tax bill on a rewards credit card, reaping hefty rewards or, if it’s what you need, gaining extra time to pay off your bill. But there are some big caveats and risks. Among the biggest hurdles: Putting your federal taxes on plastic isn’t free: the third-party processors that the IRS uses all charge a fee for the service. Fees range from 1.85% to 1.98%. Like anything else you charge to your credit card, you will incur interest charges at your purchase APR if you carry a balance from month to month. Most credit card issuers report your credit card balances and the amount of available credit to all three major credit bureaus monthly. So having either a large amount of debt or maxing out your credit cards may lower your credit score while those balances are reported. That could ding you if you’re shopping for a top interest rate on a loan, such as a mortgage. [The Wall Street Journal]

Many factors determine how happy and fulfilling your retirement will be. Smart financial planning can increase your chances of maintaining financial freedom for as long as you live. Here are some of the biggest risks to having a secure and happy retirement I’ve seen over the past twenty+ years helping my retirement-planning clients achieve financial freedom.

Risk Of An Unhealthy Retirement

The more aches and pains you suffer, your retirement will likely be less satisfying. Knee pain might not kill you, but it could limit the activities you find enjoyable in retirement. I am writing this as a healthy financial planner, not a health expert. All of us have room to improve how we eat. We can also take steps today to increase our health span in retirement (increasing our healthy years as we age).

Being healthier will afford you more opportunities for a happy and fulfilling retirement. However, being unhealthy could place limitations on you and be quite expensive. According to the Fidelity Retiree Health Care Cost Estimate, the average couple retiring at age 65 in 2022 may need approximately $315,000 saved (after tax) to cover healthcare expenses in retirement. This staggering number is your out-of-pocket cost taking into account insurance. While reducing the number of preventable, chronic illnesses you may need to treat won’t eliminate your medical expenses, it will likely reduce them.

Longevity Risk In Retirement

Many of the signs of aging won’t kill us anytime soon. I don’t recall anyone dying from an overabundance of fine lines and wrinkles. One of the biggest risks to your financial freedom in retirement is living longer than expected or outliving your savings and investments. Fewer retirees have pensions or guaranteed lifetime income (beyond Social Security).

Retirees should be aware that their retirement savings may need to last longer than expected.

The Risk Of Not Saving Enough For Retirement

Ideally, by the time you retire, you should have saved nine-to-ten times your annual salary. These numbers may vary depending on your lifestyle expenses, health, and other factors, such as having paid or nearly paid off your home mortgage.

If you are still working, take the time to develop a financial roadmap to increase your savings and get on track for financial freedom in retirement.

Retirement Risk Of Spending Too Much

There are some costs you have limited control over after you have retired. These include things like rent, medical care, and just plain inflation eroding the purchasing power of your retirement income. For the average retiree who did not save enough for retirement, living off the income provided by your retirement assets and Social Security will not be possible. That is not to say you can minimize spending in certain areas to reduce the risk of running out of money.

While you don’t control tax rates, tax planning can help you keep more of your retirement income.

Inflation Risk to Retirement Security

Even the best-laid retirement plans are affected by inflation. Until recently, we had been in a low-inflation environment. Even then, retirees would see their purchasing power cut in half over a 30-year retirement. As inflation rates increase, the drop in purchasing power is reduced at an even faster pace. For example, with 8% annual inflation, your purchase power will be cut in half in just nine years.

Lack of Stock Market Risk

While you can’t control inflation, you can plan for it. Putting all your money into a fixed annuity, bank account, or CD with guaranteed returns may be tempting, but those options likely won’t keep you ahead of inflation. The younger and/or healthier you are, the more your investment portfolio should be invested in stocks (or stock-based ETFs or Mutual Funds).

Stock Market Risk

It seems many retirees view the stock market as the biggest risk to their retirement income. To be fair, if the stock market never went down and returned 30%+ each year, many people would still only see their financial issues reduced, but not always eliminated during retirement.

As we saw in 2022, the stock market does, in fact, go down, and the drops can be quite painful. However, if you zoom out and look at how much money the stock market has made over time (including every down day), the stock market outpaces bonds, bank accounts, and even real estate.

Unfortunately, the annual DALBAR studies have shown that the average investor greatly underperforms the stock market and, in many cases, even under perform their own in investments. Often people buy or sell investments at the absolute worst time.

You may be at a bigger risk from some of these seven financial freedom destroyers depending on your circumstances. Work with your Fiduciary Fee-Only Financial Planner to develop a happy retirement roadmap while reducing your risk of running out of money as you age.

In this article, I present the strategy that focuses on cash-rich firms. Continuing market volatility attributed to banking industry fears and recession worries makes companies with solid cash positions more likely to succeed during these turbulent times. The AAII Cash Rich Firms screening model has an average annual gain since inception 1998 of 7.2%, versus 5.6% for the S&P 500 index over the same period.

Investing In Cash-Rich Firms

A healthy cash position provides important flexibility and safety to a firm. Cash-rich firms should be able to meet their debt obligations easier, decreasing the probability of a creditor weakening the position of the equity investors or even gaining control of the firm. During an economic slowdown, cash allows a cyclical firm to continue its research and development (R&D) efforts, as well as undertake capital expansion or productivity improvements, in anticipation of an economic rebound.

Firms with excess cash positions can also elect to distribute the cash to shareholders in the form of dividends. Many firms have also chosen to use excess cash to repurchase shares on the open market. This helps to boost the share price in the short term by providing demand for shares. And with fewer outstanding shares, the same level of net income boosts earnings per share.

Firms with excess cash can also attempt to use the cash strategically to broaden their product lines or diversify into new areas. This can be accomplished either through direct capital investment or the outright purchase of another firm.

A high cash position can also be a disadvantage. Cash is generally defined as cash plus marketable securities that are readily convertible into cash. This consists of bank deposits and short-term instruments such as Treasury bills. The cash position may reduce profitability if it earns a lower rate of return than other assets in the company. One would expect any corporate investment to earn more than the money market rate in the long run.

When finding companies with large cash balances, the critical question becomes: Why are they holding on to the cash? Often, it points to a firm in a mature industry with few growth prospects. The firm may have reasonable profit margins, but little need for additional capital. For such a company, the need for a good management team is especially important.

Measuring Cash Levels And Applying The Screen

Firms must report their cash holdings quarterly, which is done when they file their quarterly financial statements. Cash and cash equivalents are the most liquid assets on the balance sheet. Dividing cash by the number of outstanding shares provides us with the measure of cash per share. The amount of cash per share relative to the market price per share provides a useful indication of the cash level of the firm.

Screening for firms with high proportions of cash to share price represents a reasonable strategy for tracking down cash-rich firms. When performing such a screen, it is important to exclude companies in the financials sector since the nature of their business requires them to hold large cash positions. Utilities are excluded because of their regulated nature and overall low growth potential. Real estate investment trusts (REITs) are also excluded due to their unique organizational structure and non-comparable financial statements.

In addition to excluding financials, utilities and REITs, a filter requiring positive earnings from continuing operations for the last 12 months is specified as a minimum current profitability requirement. This very simple screen helps to indicate that the passing firms are at least making some money in their ongoing operations. More stringent screens could look for positive free cash flow or positive cash flow from operations.

The next criterion specifies a minimum share price requirement of $5. Without the minimum share price requirement, bankrupt firms with a share price of a few pennies could dominate the screen.

To measure the financial strength of the firm, we first screen for a debt-to-total-capital ratio below the industry norm. This is a popular measure of financial leverage. Debt for this ratio consists only of long-term debt, not total debt. Capital refers to all sources of long-term financing—long-term debt and stockholder’s equity. A high ratio indicates higher risk. However, a low level may not be an indication of low risk if current liabilities are high.

To help measure the overall levels of liabilities, we also require debt relative to total assets to be below the industry norm. The debt-to-total-assets ratio measures the percentage of assets financed by all forms of debt. A higher percentage, and a greater potential variability of earnings, translates into a greater potential for default. Yet, prudent use of debt can boost return on equity.

Our final conditioning screen looks for a minimum market capitalization (shares outstanding times price per share) of $50 million to help ensure a minimum level of trading liquidity.

Screening For High Gross And Net Cash

Our first screen for high levels of cash compares the cash per share to the stock price. We are looking for stocks with a cash level of at least 20% of the stock price. If you were to purchase a $20 stock with cash representing 20% of the stock price, one could argue that you are in effect paying only $16 for the business.

As important as it is to look at cash, it is equally important to look at the financial obligations of the firm. A high level of cash per share could be quickly reduced when considering the firm’s short-term liabilities and long-term debt. Some firms build up a cash reserve to ensure that they can meet the required payments of their short-term debt and current portion of long-term debt.

A useful modification to the ratio of gross cash to price per share is to subtract the short-term liabilities from cash to establish a net cash per share figure, which provides a better measure of the excess cash on hand. Dividing the net cash per share by the share price indicates how much of this “excess cash” is available on a per-share basis.

Our second screen for high levels of cash looks for stocks with a net cash per share level of at least 20% of the stock price. The table of passing companies below lists both the net cash per share and net cash as a percent of stock price. Normally, many of the firms with positive ratios of cash to price per share have negative ratios once short-term liabilities are considered.

Beyond looking at the static cash positions of these firms, an examination of the actual cash generated by the firm is even more important for a long-term investor. We do not screen for this element in our analysis, but measures such as cash flow or free cash flow can help to gain a feel for the cash generation. Free cash flow is calculated by taking the cash flow from operations as reported on the firm’s statement of cash flow and subtracting capital expenditures (capex) and dividends. This measure attempts to capture whether the firm is generating enough cash to help fund any necessary internal capex.

Belief in Management Is Critical

Screening for cash-rich stocks is not a simple process. Preliminary filters should screen for companies that not only have a high level of cash per share, but also a strong balance sheet, the potential for future earnings growth and positive free cash flow per share. AAII’s screen highlights companies with a relatively large percentage of net cash on hand. A high net cash level relative to share price does not ensure financial strength or price stability. In selecting final candidates, much of the analysis rests on your belief in management’s ability to use and invest any cash holdings wisely.

Stocks Passing the Cash Rich Firms Screen (Ranked by Cash to Price)

___

The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.

If you want an edge throughout this market volatility, become an AAII member.

There have been many wagging fingers and sharp tongues in Congress over the last two days. And a lot of irony, because you could reasonably say that many of the people firing away at regulations are in large part responsible for the current problems because of deregulation they voted for in 2018.

In the Senate Banking, Housing, and Urban Affairs Committee hearings, Montana’s senators yesterday came on strong, according to a report in The Hill. “For over a year, regulators were saying to this bank, ‘straighten up and fly right,’ and they never did a damn thing about it,” the publication quoted Sen. Jon Tester (D-MT.) said. “You did not have to be an accountant to figure out what the hell was going on here.”

As for his colleague, Sen. Steve Daines (R-MT), the Republican asked Fed Vice Chairman for Supervision Michael Barr, “If you find as part of your review that certain individuals were clearly negligent in the performance of their duties, are you willing to recommend they be fired?”

When regulators at the House Financial Services Committee on March 29, 2023 explained raising concerns about Silicon Valley Bank in 2021, Rep. French Hill (R-AR) said, “That doesn’t sound like a very urgent supervisory process,” according to a second Hill story. On hearing someone suggest tougher regulation, Rep. Blaine Luetkemeyer (R-MO) said, “How about enforcing the existing ones first?”

Yeah, about that, Luetkemeyer, Hill, Daines, Tester, and many others can also be found on the list that Newsweek compiled earlier in March 2023 of all the lawmakers who voted to weaken regulations on “smaller” banks back in 2018.

Other members of the Senate Committee who voted for deregulation were Mark Warner (D-VA), Kyrsten Sinema (I-AZ), Mike Crapo (R-ID), Thom Tillis (R-NC), John Kennedy (R-LA), Kevin Cramer (R-ND).

And on the larger House Committee: Chairman Patrick McHenry (R-NC), Frank Lucas (R-OK), Bill Posey (R-FL), Bill Huizenga (R-MI), Ann Wagner (R-MO), Andy Barr (R-KY), Roger Williams (R-TX), Tom Emmer (R-MN), Barry Loudermilk (R-GA), Alexander Mooney (R-WV), Warren Davidson (R-OH), and Ralph Norman (R-SC) on the GOP side (with a number probably not having been elected in 2018).

Not to forget a few Democrats in the House Committee as well: David Scott (D-GA), Jim Hines (D-CT), Bill Foster (D-IL), and Josh Gottheimer (D-NJ), leaving 19 who didn’t vote for it, whether from being opposed or not in office at the time.

As Sen. Elizabeth Warren (D-MA) said on March 7, 2018 about the weakening on banking regulations that would eventually become law, “If this bill passes, Washington will scrap those rules for 25 of those enormous banks. Under this bill, a bank that controls up to a quarter of a trillion dollars in assets and has offices around the country and around the globe will follow the same rules and regulations as a tiny little bank in Adams, Massachusetts.”

Those 25 banks that were of significant size included SVB
VB
and Signature, which at the end of 2022, according to the Federal Reserve, were the 16th and 29th largest banks in the country by assets. And First Republic, which got a $30 billion bailout by 11 of the even larger banks, was number 14.

Every time the country has started with weak banking regulations or rolled them back, there has been trouble. A list from Rodney Ramcharan, a professor of finance and business economics at the University of Southern California, is what you might expect: the Great Depression, the Savings and Loan crisis of the 1980s, the Great Recession, and now the start of something new. Maybe it will halt at a handful of “smaller” banks with hundreds of billions in assets—ah, wait, Credit Suisse had to be bought out by UMB in Switzerland to keep it from going under.

As a new economic study, by Yale and Boston College researchers, on 750 years (no typo) of banking history shows, “the combination of account guarantees and emergency lending, additionally coupled with a private sector involvement” that we are seeing today and did in the Great Recession, have a high tendency to turn into “’systemic’ bank-distress episodes.”

That is technical terminology for the people hung out to dry being the general populace and taxpayers.

There is a reason that stronger regulations get put back into place after each major disaster. Too many executives at banks have the hearts of gamblers and lack the self-control to embrace sobriety and probity.

It is time that elected officials stop pretending that the problems lie with some small set of rascals, whether Congress or an administration wants to point at executives or regulators. It is legislators who decide where to impose regulation. They are the also the ones who trim it back. These are the people ultimately responsible for bad policy that enables worse actions with terrible consequences. Maybe they could try something different for a change.