ECONOMY
Consumer
Confidence Boosts Economy
I
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f the economy were a glass of
water, do you see it as half empty or half full? How consumers look at it
actually affects the health of the economy, according to experts. They say the
economy would be much better if more Americans viewed it with optimism.
What transforms
optimism into actual economic gains is "herd mentality." Herd
mentality refers to how people are strongly influenced by their peers to adopt
certain behaviors, follow trends and inspire (or depress) consumer confidence.
Consumer
confidence and spending tend to rise and fall with the economy.
Low consumer
confidence tends to make consumers save more than they spend. This in turn
causes the economy to contract, as evidenced by the fact that consumer spending
has made up around 70 percent of all economic activity in recent years.
For example,
consumer confidence went from 54.4 in August 2009 down to 53.1 in September
2009, according to The Conference Board, which tracks consumer confidence
levels every month. Experts say this is bad news for retailers that were hoping
that this year's holiday shopping season would be better than it was in
2008.
And that is
particularly bad news for those retailers that depend on the holidays to make
up for losses during other quarters. This makes consumer spending a critical
factor in determining how quickly an economy will recover from a recession.
The good news is
that the consumer confidence level for September 2009 was much higher than for
September 2008, when it was measured at only 44.7. In fact, furniture sales
rose for the first time in a year and a half in September. Additionally,
various polls indicate that a growing number of people believe the economy is
on the rebound.
Consumer
confidence got an even bigger boost when, on Oct. 18, the Dow Jones Industrial
Average climbed above 10,000 for the first time in a year. While some remain
cautious, experts say the Dow's climb breached a psychological barrier for many
investors who got burned when the Dow fell to a low of 6,547 in March 2009.
Paul Wharton, a
Seattle-based TV personality, recently purchased a pair of python shoes that
set him back more than $1,000. The shoes, Wharton said, are a talisman of
better times to come. "It's almost like I've come out of the recession
before the market," he told The
Washington Post. "I made a choice. I just refused to be in the
recession any longer!"
Economists feel
more positive about the economy and are hoping this optimism will spread, that
it will translate into more spending. When some people start buying, it encourages
others to start buying as well.
TAX AND LEGAL
Charitable
Giving Gives Back
mericans lead the world in
charitable giving – twice as much as the next most charitable country,
according to a 2006 Charities Aid Foundation report. In 2006, Americans set a
new record in philanthropic contributions, with an estimated $295 billion. A
large percentage of that comes from individual donors.
Experts say the
practice of voluntary giving has positive effects on the giver's health,
happiness and even personal wealth.
A direct effect
on wealth is, of course, the tax deduction. But only certain donations qualify.
The tax benefits
are applicable only to contributions made to qualified organizations and are
not set aside for use by a specific person. Legitimate public charities are
mostly federally approved 501(c)(3) organizations. Generally, they include
religious, educational, scientific, literary and charitable organizations.
Certain organizations that foster national or international amateur sports competition
may also qualify. The IRS has on its Web site a list of organizations eligible
to receive tax-deductible charitable contributions.
Generally,
deductions for monetary contributions are limited to 50 percent of adjusted
gross income (AGI). For example, the deduction limit for an AGI of $100,000 is
$50,000 for that year. In some cases, 20 percent and 30 percent limits may
apply to gifts of property that have appreciated in value and are held for more
than one year. Any amount in excess of the applicable limitation to charity in
one year can be carried over for the next five years.
Charitable
donations made by credit card are deductible in the year they are charged to
the credit card, even if the giver pays the credit card company in a later
year. Donations made through a pay-by-phone bank account are not deductible
until the payment date is shown on the bank statement.
Different tax
rules apply for cash contributions where the donor receives a financial or
economic benefit in return, such as purchasing a ticket for a dinner dance at a
church or for a fundraising auction conducted by a charity.
There are many
ways to contribute to a qualified cause. These may include charitable gift
annuities, gifts in kind, volunteer work and endowments. While some of these
ways may not provide direct tax benefits, the IRS may allow indirect
write-offs. Consult with a tax advisor about the many ways Uncle Sam repays
good deeds.
HEALTH AND WELL-BEING
Health
Enrollees May See New Plans
T
|
he typical employee welcomes the
open enrollment season with as much enthusiasm as he or she would a documentary
chronicling the life cycle of a garden slug. Too many employees – 60
percent, according to a survey conducted by Hewitt Associates – don't
bother to study their options and do nothing at all during this time. This
forces their employers to sign them up for what they had the previous year.
This year, however, may be a little different.
The number of
large employers that will introduce consumer-directed health plans (CDHPs) this
year went up sharply to 20 percent, from 14 percent last year, according to
Mercer, a firm specializing in employee benefits. In fact, some large-employer
clients that had previously considered launching CDHPs within the next three to
five years will implement them in 2010, says a consultant with Towers Perrin.
Like it or not,
it's time to grasp the basics of CDHPs and Health Savings Accounts (HSAs).
CDHPs are a
broad range of health plans that allow their members to use personal HSAs to
directly pay qualified medical expenses. The idea behind a CDHP is that
employees will act more judiciously, like consumers, comparing health care
quality and costs, and negotiating lower prices. Because plan participants are
spending their own dollars for health care, it also discourages unnecessary
utilization such as emergency room visits for nonemergency care.
An HSA is the
most common account under a CDHP, which may also offer Flexible Spending
Accounts (FSAs) and Health Reimbursement Accounts (HRAs).
The HSA is set
up in conjunction with a high-deductible health plan (HDHP). Members must be
enrolled in an HDHP in order to set up an HSA. Annual HSA contributions are
used by individual and covered family members to pay for the cost of the
deductible, out-of-pocket expenses and any other qualified expenses. In 2010,
employees will be able to set aside as much as $3,050 in an HSA for individual
coverage and $6,150 for family plans. Employees over age 55 can also make
increased payments until they reach Medicare eligibility.
The funds
contributed by the employer and the employee to the HSA are not subject to
federal income tax at the time of deposit. The account is owned by the employee
and can be used to pay for qualified medical expenses at
any time without federal tax liability. HSA funds not used within a calendar
year stay in the account, where they earn interest and can be accessed for
future use.