This Week in Your Wallet: July 17, 2012
Here’s a multiple choice question for you:
Q: What is Libor?
a) A sub-Saharan animal that is a cross between a lion and a boar.
b) The last name of a head honcho at Barclays.
c) The act of committing both libel and slander.
d) The London interbank offered rate.
There’s a good chance you’ve seen “Libor” in the business section headlines over the past week, so you might be torn between B and D. The correct answer is actually D: the London interbank offered rate.This is the average interest rate at which banks can borrow money from each other, and it’s been in the news because investigators around the world are looking into whether banks have manipulated thisrate for their own gain.
The New York Times blog DealBook has a great Q&A that breaks down the key facts about Libor, but essentially, Libor is important to understand because it is a rate that is used to determine the interest rates on mortgages, student loans and credit cards — and it can move when you don’t expect it. At the end of June, Barclays paid $450 million to settle claims that it had tampered with these rates. The scandal didn’t end there, unfortunately. Late last week, the U.S. Justice Department launched an investigation into more than ten big banks.
According to the Times, “cities, states and municipal agencies are examining whether they suffered losses from the rate manipulation.” If traders and bank employees are found guilty, they could be imprisoned.
Due to the complex nature and large scope of the investigation, it could rage on for years. However, it could very quickly impact consumer opinions for the worse — not to mention the value of the companies involved. For the time being, there will be no immediate impact on your wallet, though I do recommend bookmarking that Q&A I linked to. If Libor stays in the headlines, as I suspect it might, it will prove to be a good reference.
And now, here are the other headlines for the week:
Credit Card Surcharges on the Horizon
On Friday, retailers reached a $7.25 billion settlement with MasterCard, Visa and a few big banks, regarding the fees they are charged to accept customers’ credit cards. Thanks to this settlement, these retailers now have the ability to institute a “checkout fee” at their registers.
Now, there are some limits to what merchants can do with this. Retailers can only charge customers the equivalent of what they pay to accept a credit card. In most places, this charge ranges from 1.5 to 3 percent. Another key rule is that retailers can only charge this “checkout fee” on credit cards; debit cards are exempt.
Forbes has all the details of the settlement in this article, here. But here’s my question for you: In the face of these charges, will you start using cash or debit more?
For many students, dorm life is an essential part of the college experience — I enjoyed my freshman dorm to the point that I went back as an RA (resident adviser) as an upper classman. Yet, as fun as the cramped living and around-the-clock bonding can be, it can also tack on thousands of dollars to the overall cost of a college degree.According to a new survey by student lender Sallie Mae, students are increasingly looking at this cost and saying, “no thanks!” Reuters reports that 47 percent of students whose families make $100,000 or more are living at home while attending college, up from 24 percent just two years ago.
That wasn’t the only surprise from the study. There’s been a drop in the number of parents who look at college as an absolute. Forty-six percent of parents strongly agreed that a college education is part of the American dream, down from 50% in 2011. Additionally, fewer parents strongly agreed that college is expected in their families (36% in 2012, down from 44% in 2011 and 56% in 2010). That’s a big decline. And it appears that parents are now more reluctant than in the past to borrow for their kids to earn a degree that won’t necessarily earn those kids a living — fewer parents are borrowing to help their kids majoring in the vlsual and performing arts than in engineering, for instance (though, the kids themselves are still as willing to take out loans for these majors).
