Consumer Confidential: Cellphone taxes, 401(k) matches, beer sales

Here's your watching-the-detectives Wednesday roundup of consumer news from around the Web:

--At least your cellphone bill may hold steady. The House has approved a five-year freeze on any new state and local taxes imposed on cellphones and other wireless services, including wireless broadband access. The voice vote reflected a consensus that new taxes on wireless mobile services have far outpaced average sales taxes on other items and have become a deterrent to the spread of wireless broadband technology. Wireless customers reportedly now pay 16.3% in taxes and fees, more than double the average rate of 7.4% on other goods and services. The bill prohibits state and local governments from imposing so-called discriminatory taxes on mobile services, providers or cellphones for five years.

--Some more good news: Most of the companies that either suspended or reduced their 401(k) matches during the economic downturn have reinstated them, according to business consultant Towers Watson. An analysis of 260 mid- to large-sized companies shows that 75% of those that took the step to cut costs have restored their match. Among those, about 74% are continuing the match at the previous level. About 23% brought matches back at a lower rate. Among these companies, the reinstated match was slightly more than half of their original contribution. Just 3% restored matches at a higher rate. I wonder what companies those are.

--But here's a sign that times are still tough: We're not chugging as much brewski. MillerCoors, the country's second-largest brewer, says its third-quarter net income fell 14.1% due to a weak economy, low consumer spending and higher commodity costs. The combined U.S. operations of SABMiller and Molson Coors Brewing, which make Miller and Coors brand beers, said underlying net income in the July-September quarter slipped to $286.9 million, while net sales were down 2.5% at $1.965 billion. The brewer has a U.S. beer market share of nearly 30%, behind Budweiser brewer Anheuser-Busch InBev's share of almost 50%. So do your bit for the economy and hoist a few.

-- David Lazarus

Photo: Lawmakers want to hold cellphone taxes steady for five years. Credit: Jason Alden / Bloomberg

Americans are saving more in 401(k) retirement plans

 
If there's a bright side to the troubled economy and ever-rising medical costs, perhaps this is it: A new survey shows American workers are saving more in their 401(k)s to fortify themselves against the financial gloom they see around them.

Over the last year, 41% of people with 401(k) retirement accounts have boosted their contribution rates (up from 31% last year), while 11% expect to stash away the maximum $16,500 allowed under federal tax law (it was 8% a year ago), according to an annual survey by Mercer, a unit of Marsh & McLennan Cos.

The change is driven largely by deepening concerns about the economy.

Of those surveyed, 45% fear losing their jobs (up from 36% a year ago) while 44% expect to delay retirement (it was 35% last year). And the seemingly unstoppable rise in retiree health costs is registering with American workers: 36% said saving for healthcare is a major goal, up from 24% a year earlier.

"Participants seem to be saying that they can no longer rely on market performance, their employer or the government to build their retirement savings for them, but must take control of every aspect they can in order to provide for a successful retirement," said Suzanne Nolan, marketing and communications director for Mercer’s U.S. outsourcing business.

It's positive that people are taking greater control of their finances -- even if for depressing reasons -- but it's only part of the story.

The survey depicts Americans who already participate in 401(k) plans -- i.e., a self-selected group that tends to be financially aware and motivated. And to contribute to a 401(k), you have to have a job in the first place.

The bigger risk is for the millions of Americans who have little retirement savings, or who have lost their jobs and are raiding their nest eggs to buy food or pay the mortgage.

For them, their retirement hopes may rest on the ability of the economy to turn around.

RELATED:

Second quarter economic growth revised up as jobless claims fall

Typical 30-year mortgage in U.S. back above 4%, Freddie Mac says 

Smart money is a rare positive for the stock market 

-- Walter Hamilton

Photo: Golf course at Homestead Resort in Midway, Utah.

Time, Money and Unemployment

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

What do people do after they lose their jobs, other than look for a new one? The unemployed put more time into unpaid household work, including child care, according to an important new study by Mark Aguiar, Erik Hurst and Loukas Karabarbounis. Their findings dramatize the limitations of conventional measures of economic well-being based entirely on market income.

Today’s Economist

Perspectives from expert contributors.

When Benjamin Franklin advised us that “time is money,” he was living a world in which many individuals were self-employed and could at least grow their own food. In our world, it’s hard to convert time into money if you can’t find a paying job.

Perspectives from expert contributors.

Still, Americans 15 or older (including students and retirees) devote, on average, almost as much time to unpaid work as they do to paid work (about 23 hours a week on household activities, purchasing goods and services, caring for and helping others, and volunteering, compared with about 25 hours a week on paid work and related activities, according to data from the 2010 American Time Use Survey).

Time applied to unpaid work can provide a partial substitute for consumer expenditures. Individuals can cut down on restaurant spending by preparing their own meals, care for family members rather paying for day care or elder care, clean the house instead of hiring a maid or fix their own roof instead of hiring a roofer.

Shopping may be fun sometimes, but it’s also foraging work in which increased time and effort can save money. In previous research, Professors Aguiar and Hurst have shown that households that shop twice as frequently as others pay prices that are 7 to 10 percent lower.

Retired people seem particularly adept at stretching their budgets. In addition to shopping more carefully, they typically reduce spending on food – a pattern that once led many economists to assume that they had not saved enough for retirement. But Professors Aguiar and Hurst have shown that retirees’ actual food consumption does not decline. Rather, they increase the time devoted to food preparation, cooking more (and presumably better) meals for themselves.

Previous studies of the impact of unemployment on time allocation showed little effect, generating at least one news article about the unemployed “frittering their time away.” Professors Aguiar, Hurst and Karabarbounis provide a very different picture in their recently released paper for the National Bureau of Economic Research, “Time Use During Recessions.”

In a sophisticated econometric analysis of data from the American Time Use Survey, they controlled for underlying trends and also compare differences in time-use across states with differing levels of unemployment. (See this blog post for more details).

They found that about 30 percent of the forgone market work hours during the recession were reallocated to housework and about 5 percent to child care. An additional 10 percent were reallocated to education, health care and civic activities. Time devoted to job searches increased, but remained relatively small, perhaps because there’s not that much people can do when jobs aren’t available.

Most of the remaining time went to increased sleep time and leisure, including more television viewing. Not surprisingly, women were more likely than men to reallocate time to housework. They were also more likely to increase their sleep time.

The overall increase in non-market work implies that household consumption among the unemployed fell less than market income, but it’s hard to put a dollar value on the unpaid work. When people make a voluntary decision to substitute time for money, we can infer something about the relative value they place on it.

But most unemployment is involuntary, and some unpaid work probably represents an effort to stay busy more than a significant contribution to household living standards.

The authors emphasize the relatively large impact of unemployment on unpaid work, in part because this is a new finding, and in part because it counters the wrong impression that, as Professor Hurst put it, the Great Recession was a Great Vacation.

But it is also important to note that most of the unemployed can’t allocate more of the free time they gain to productive uses, even if they want to. They lack the capital, land, tools and skills needed to flexibly shift from wage employment to production for their own use. Even when they can make a partial shift, their productivity is likely to be lower in unpaid work than paid work.

That’s why involuntary unemployment represents such a waste of human capabilities and loss of productive output for the economy as a whole.

And that’s why Benjamin Franklin, were he alive today, would be wagging his finger at policy makers who don’t consider unemployment our most urgent economic problem.

Selling by baby boomers could depress stocks for years

As if investors don’t have enough to worry about these days, a new study says that selling by baby boomers in coming years could be a persistent wet blanket on the stock market.

The report by the Federal Reserve Bank of San Francisco predicts that stock prices could fall 13% over the next decade solely because of baby boomers dumping stocks to branch into more conservative investments as they retire.

It could take an additional six years, until 2027, for share prices to return to the level they reached last year, according to the analysis by researchers Zheng Liu and Mark M. Spiegel.

In the typically understated language of a government report, the researchers describe this scenario as “quite bearish.”

The report’s basic premise is that stock prices “have been closely related to demographic trends in the past half century" -- in other words, that baby boomers pushed up stock prices in earlier years as they hit their prime earning and saving years.

This isn’t a new hypothesis -– and some analysts have disputed it in the past –- but the timing of the report is unsettlng in itself given that the market has slumped again.

Indeed, aside from being a longer-term depressant, selling by baby boomers -– the post-War contingent born between 1946 and 1964 –- could forestall any current-day recovery in the market from the global financial crisis.

“It is disconcerting that the retirement of the baby-boom generation, which has long been expected to place downward pressure on U.S. equity values, is beginning in earnest just as the stock market is recovering from the recent financial crisis, potentially slowing down the pace of that recovery,” the report says.

The only encouraging tidbit –- if it could be called that -– is that stock values could rise solidly in later years as the boomer generation ages. Stock prices should begin rising strongly starting in 2025, and by 2030 should be about 20% higher than in 2010, according to the report.

Good news -– provided, of course, that you can wait that long.

RELATED:

Workers are more pessimistic about retirement, study finds

Don't panic in reaction to stock market swings

Investor flight from stock funds accelerates

-- Walter Hamilton

Photo: Getty Images

 

Investment advisor sentenced to prison for defrauding retirees

 
A financial advisor from Topanga has been sentenced to nine years in federal prison for running an "audacious" Ponzi scheme that defrauded investors, many of them retired bus drivers, out of more than $7 million.

Thomas L. Mitchell, 64, was sentenced Monday at the federal courthouse in Los Angeles. U.S. District Judge Gary A. Feess also ordered him to pay more than $7 million in restitution to about 60 victims.

Mitchell, who pleaded guilty in April to mail fraud, established several companies to target retirees, many of them former transit operators for the Los Angeles County Metropolitan Transportation Authority, prosecutors said. He operated the scheme from 1995 to 2010 and cost many victims most or all of their retirement savings, said Thom Mrozek, a spokesman for the U.S. attorney’s office in L.A.

Mitchell told investors that he would put their money in stocks, bonds and real estate but in fact used most of the funds he raised to finance a lavish lifestyle including a luxury apartment, high-end cars and expensive travel and entertainment, prosecutors said.

“Mr. Mitchell committed an audacious fraud that spanned many years and devastated many victims,” said U.S. Atty. André Birotte Jr. “He was able to lead a luxurious lifestyle by stealing the life savings of hard-working men and women who only sought a dignified retirement. For his criminal conduct, Mitchell richly deserves his nearly decade-long prison sentence.”

RELATED:

Barry Minkow gets 5 years in prison in Lennar fraud case

Bank emails, bogus lotteries: Your weekly ScamWatch

Ponzi, Ponzi, Ponzi: Your weekly ScamWatch

-- Stuart Pfeifer

Photo: Thomas L. Mitchell was ordered to pay more than $7 million in restitution. Credit: Bloomberg