ECONOMY
Spending
Vs. Saving in a Down Economy
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enjamin Franklin advocated the
virtue of saving pennies (back when they were worth something), but some
modern-day economists beg to differ. Who is right? Consumer spending serves as
the backbone of the U.S. economy. It made up 75 percent of the national income
in 1929 and reached 83 percent in 1932. After falling dramatically during World
War II, it bounced back to about 70 percent by 1983 as the result of relaxed
consumer credit.
When the economy
goes into recession, the natural reaction is to save more and spend less. In
fact, consumer fears about the economy in 2008 increased the savings rate for
the first time in decades.
But, of course,
falling consumer spending translates to lower sales. This, in turn, leads to
cutbacks in production and eventually to layoffs and high unemployment. As jobs
become even scarcer, wallets tighten up even more. That can lead to a
self-perpetuating cycle that drags further on the economy. In fact, John
Maynard Keynes had the Òparadox of thriftÓ theory in the 1930s, which was, if
everyone saved at once, it would lead to an overall erosion of savings because
all income would drop.
So, by
maintaining the level of spending, consumers can help break the economic cycle.
ÒWhatÕs good for the individual — save, save, save — isnÕt always
good for the economy, which is helped if people get out there and spend, spend,
spend,Ó according to Consumer Reports Executive Editor Greg Daugherty.
But Daugherty
also cautioned that the recession is not a license to splurge for consumers who
already are having a hard time making ends meet, in order to keep the economy
from sinking deeper. Daugherty was talking about a middle ground where
consumers continue to spend for the things they need while cutting back on some
unnecessary purchases.
Additionally,
spending cash that consumers donÕt have could actually have a negative impact
for consumers and the economy. ÒOne of the reasons we had this crisis is
because people have been borrowing excessively,Ó says Anna Lusardi, a professor
of economics at Dartmouth.
Some say that
saving for future investments is what actually drives capital expansion and
thus helps the economy in the long term. When consumers put away more money in their
bank account, it isnÕt actually locked up in a vault. It is allocated to borrowers
through financial intermediaries and helps provide more capital stock and helps
produce more goods in the future.
TAX AND LEGAL
Tax
Breaks for Jobseekers
ith climbing unemployment rates,
an often-overlooked tax break can provide some financial relief for many
jobseekers. The IRS treats job-hunting expenses as tax deductible under certain
circumstances.
These expenses
include local and long-distance phone calls made to prospective employers; the
costs of preparing, copying and mailing resumes; and airfare, mileage, meals
and lodging related primarily to searching for a job. Trade, business or
professional licenses and regulatory fees, and employment agency, career
counseling and other related legal fees also may qualify as tax write-offs.
These tax breaks also apply to currently working employees looking for better
opportunities. Jobseekers can claim these tax deductions whether or not they
land jobs.
However, there
are several IRS restrictions that can invalidate these tax breaks. One
condition is that jobseekers must look for work in the same field in which they
are employed or that is similar to their most recent job. For instance, a
computer programmer who lost his job and is applying for work at another
high-tech company can file those deductions. He is not allowed to do so if he
decides to pursue a career in a totally different industry. However, a person
temporarily working in another field in order to pay the bills can legitimately
make those claims while looking for a job in his or her own field.
Another
condition for employment-search costs to be valid is that there should not be a
Òsubstantial breakÓ between the last job and when a person starts looking for a
new one. First-time job hunters also are disqualified from availing themselves
of these tax deductibles, although new grads with college internships or valid
jobs while in college who are searching for work in the same trade or business
will be able to take the job-search tax deductions.
Assuming a
person is qualified for these tax deductions, it is important to keep a careful
log of all expenses, mileage, receipts and records of money paid directly
related to job hunting. They are classified as miscellaneous
itemized deductions on line 21 of Schedule A.
The
miscellaneous itemized deductions, which can be added to other miscellaneous
deduction items like tax-preparation fees and investment expenses, must exceed
2 percent of the taxpayerÕs adjusted gross income. For many jobseekers who took
a pay cut or have been out of work, these tax write-offs can give them a much
needed break.
HEALTH AND WELL-BEING
Fighting
a Denied Health Claim
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bout 10 to 15 percent of claims
are denied across all types of medicine, and not all of them should have been
refused. So consumers should not give up easily when their legitimate claims
are initially limited or dismissed.
Sometimes an
insurer may rule a medical procedure Òunnecessary.Ó Experts say the correct
response is to put pressure on the insurer. They suggest that patients should
enlist the help of their doctor in providing the reasoning for why the
procedure was performed. If this doesnÕt help, consumers also can enlist the
help of their employerÕs benefits department.
Treatments that
are deemed ÒexperimentalÓ and therefore not covered are another gray area. Many
policies can be ambiguous about which treatments are classified as experimental
and which are standard. This is where the attending physician who ordered the
treatment becomes a major player. He or she should help the patient to justify
these treatments.
In one case, an
insurer refused to pay for a migraine suffererÕs stay at the Mayo Clinic
because the treatment the patient required was ruled experimental. The insurer
reversed its decision after the doctor proved that the treatment he ordered was
considered routine in 49 other states.
Another basis
for claims denial is that the insuredÕs doctorÕs charges are too high and
exceed the Òusual and customaryÓ fees for the service in an area. The solution
is to determine the usual and customary fee in the region where the medical
treatment was given. Patients should call their doctorÕs billing manager and
find out how much other insurance companies have paid for the same procedure.
This will effectively counter an insurerÕs judgment.
In some cases,
multiple procedures may have been billed as a single procedure, making it
appear excessively expensive. Clarifying the bill often can rectify the
situation and force the insurer to pay up.
If an insurer
turns down a written appeal, consumers have a right to a formal meeting with
the insurance company. If that fails, the PatientÕs Right to Independent Review
Act of 2000 gives consumers the option of initiating an external review of the
situation through the state appeals office. This review does not require the
complainant to hire an attorney or spend thousands of dollars in the court
system.
Generally, the
success rates for insurance appeals are 70 to 80 percent, according to
Connecticut-based Advocacy for Patients with Chronic Illness. Additionally,
most insurance companies are willing to work with consumers on claim denials,
said a representative of AHIP, which represents about 1,300 health insurance
providers.