Because of the required actions to slow the spread of the coronavirus, most non-essential businesses have been forced to shut down, resulting in millions of layoffs.

To combat the economic effects of COVID-19, congress passed a $2 trillion stimulus package. Included in the stimulus package is a provision that will supply most Americans with a one-time check to help them through this crisis.

Here is what you need to know about the 2020 stimulus checks.

How Many Checks Will I Get?

 
These checks are only a one-time payment. You may have heard various ideas being thrown around, such as ongoing payments. However, the bill which President Trump signed into law allows for a one-time payment to individuals.

How Much Are the Checks?

 
The amount of your check depends on how you file your taxes and your income levels. If you are an individual taxpayer, you will be eligible to receive a $1,200 check. If you are married and filing jointly, then both you and your partner will receive a $1,200 check, for a total of $2,400.

Further, you will receive an additional $500 for each child if the child qualifies you for the child tax credit. To qualify for this credit, the child must not be older than 16 years of age. So, if you are a married couple filing jointly with two young children, you could be eligible for a total of $3,400.

Now, keep in mind that the amount of the check also depends on your income. If you make a higher income, your eligibility will gradually phase out.

If you are single, married filing separately, or if you are a qualifying widow or widower, your income must be below $75,000 in order to receive the full $1,200 check. If your income is above $75,000, your check amount will be reduced by $5 for every $100 in income over the $75,000 threshold. And if you fall into this category, but your income is over $99,000, you will not receive a stimulus check at all.

Now for married couples, your combined income must be below $150,000 to receive the full benefits of the stimulus check. If you are married and filing taxes jointly, the same phase out rules apply. However, if your joint income is over $198,000, you won’t be eligible for a check.

If you are head of household, you can receive the $1,200 if your income is below $112,500. If your income is above $112,500, the same phase out rules apply. If you earn more than $136,500 as head of household, you will no longer be eligible to receive a check.

How Is Income Determined?

 
If you already filed your 2019 tax return, that will be the income that the government uses when determining eligibility for the 2020 stimulus check. If you haven’t filed your 2019 taxes yet, your 2018 income tax return will be used.

Is this a perfect way to determine who gets a check? Of course not. But it’s what the stimulus bill calls.

Who Gets a Check?

 
If your income permits you to receive a stimulus check, then there are certain qualifications you must meet. First, you must have a Social Security number in order to receive a relief check. Unfortunately, non-citizens without green cards do not qualify for relief checks.

Second, if you’re considered a dependent, you do not receive a check. Parents of children under 16 can receive a check for their children, but the check does not go to the child.

How Will You Receive Your Check? And When?

 
If you used a direct deposit account when filing your taxes, your stimulus check or checks will be deposited there. If you didn’t, the government will mail a check directly to you. I imagine this will be an address used in your latest tax return. For some this process will be simple, especially if the bank account they used for tax refund direct deposit is still open, and for others it may be a bit of a mess (especially if your address has changed).

According to the Treasury Secretary, people should start seeing their stimulus checks within three weeks. Of course, it’s prudent to expect it to take longer, especially if a paper check needs to be mailed.

Tips for Using Your Check

 
How you use your check is completely up to you, but here are some ideas to get started.

 
Budget It for Immediate Needs
 
If you or your spouse was laid off due to the coronavirus outbreak, use the stimulus check to budget for your immediate needs. Start by writing down your spending in order of priority. Typically, most people need to spend money on rent, food, and other bills first.

If the stimulus check doesn’t go too far in your budgeting, think through some of the other aid you have access to. Unemployment has been expanded in some regards, which could mean a higher payment than if you had gone on unemployment prior to the crisis. Many1 companies are working with those affected by layoffs by making payment plans or alternative payments. For example, SoFi is offering 60 days of forbearance for student loan borrowers who have been financially impacted by COVID-19.

Another example of relief is with federal student loans. The Department of Education has suspended all payments until September 30th, 2020.

Call any service providers and explain your situation to see if they are willing to be flexible with payment plans.

 
Spend It
 
These checks are called stimulus checks because they are attempting to encourage citizens to spend money to get the economy going again. So, if you find yourself in a secure financial position, you can treat this as an unexpected bonus.

Spending your check in your local community is a great way to help the local economy. Small businesses are struggling now more than ever, so your business is greatly appreciated at this time.

 
Donate It
 
Again, if you are able to, feel free to donate your check to an organization in need.

Nonprofits are working overtime in order to provide support to those who are affected by layoffs, and many are postponing or cancelling fundraisers that they rely on to continue operations.

Other Resources to Check Out:

• Will there be a Second Stimulus Check for COVID?

• What is Happening To Your Student Loans During the Coronavirus Crisis

According to Goldman Sachs in early 2019, the 10-year trailing annual return of 15% ranks in the 94th percentile of all 10-year periods going back to 1880.

There are millions in the workforce today – including young millennials and the oldest of generation Z – who have never worked during a recession or economic downturn.

The purpose of this post isn’t to debate what causes the boom-bust cycle, but it’s tough to deny that a downturn won’t come at some point in the near future. How soon that will happen, and how drastic of a downturn it will be, are unknown.

The best thing you can do today is to prepare your finances for a recession. If it doesn’t hit, this prep work is still beneficial. If a recession does hit, you’ll be ready for it.

Cash is King

 
When you hit a rough patch from a layoff or large unexpected expense like a surgery, having cash set aside in an emergency fund makes things a lot easier – or at least a little less stressful. I say it again and again: you need an emergency fund!

Having that cash set aside is a smart thing to do even if we don’t hit a recession, but is even more important if we hit a downturn. Layoffs will happen more often during a recession, meaning the odds of your specific job being eliminated increase. It also will likely take much longer to find a job than it would during times of economic growth.

If you don’t have much in savings right now, the prospect of building an emergency fund can be daunting. Instead of focusing on the ultimate number you want to hit, concentrate on making progress where you can. Even $100 a month towards a savings account is progress.

Another thing to think about is how much money you have in stocks versus cash. If you have almost no money in cash but a lot in stocks, it may make sense to sell some of your stocks to fund a cash emergency fund. The reason being that if stocks tank you may end up being forced to sell at the bottom of the market.

Consider Looking for Extra Sources of Income

 
If you don’t already have a way to make extra money above and beyond your 9-5, it makes a lot of sense to think about it before something drastic happens, such as a job loss.

Just a couple reasons this makes so much sense:

• Can help you funnel money towards an emergency fund or debt pay-down

• Gives you confidence that you can make money even if your 9-5 is taken away from you

The sooner you start the more pickier you can be. I didn’t make a dime the first year of blogging as a side hustle, but I was putting in a ton of work. Some of the more desirable side hustles, which typically are some form of business ownership, can take a while to get off the ground. I’ve been blogging for seven years and I couldn’t have anticipated where starting a blog would take me. But at the same time I warn others that it only makes sense to start a blog if you are committed to working on it for at least six months, minimum.

Another example is an Etsy store. In theory you could decide to start an Etsy storefront today and have a fully stocked store within a month. But in reality it could take you months and months of promoting and word-of-mouth to make any significant revenue, let alone profit. The sooner you can start the better.

If you need money quick there are always side hustles that can bring in more consistent cash quickly, but if you want to build a business it’s going to take some time.

To help you brainstorm here are 10+ ways I’ve made side income. If you want a bigger list here are 50+ online and at-home side hustles.

Student Loan Debt

 
Every day 3,000 borrowers default on their student loan debt.

This doesn’t have to happen.

Federal student loans have income-driven repayment plans that adjust your required monthly payment according to your income. Your payment could be as low as $0.

If you are stretching your finances to try to pay extra towards your student loans at the expense of building an emergency fund, paying off other debt, or in general building up other areas of your finances, it makes sense to consider an income-driven repayment plan.

Here’s a post explaining income-driven repayment plans. I also cover them extensively in Student Loan Solution.

Private student loans are a different beast. There are not income-driven repayment options or opportunities for loan forgiveness, and paying them back should be prioritized over federal student loans.

One thing you can do with private student loans is look for better interest rates. Many undergrad private student loans have terrible interest rates, sometimes in the double digits. There’s a lot of competition and you can refinance at a lower interest rate through a different lender. You also can refinance for a longer term, such as 15 or 20 years. While this isn’t ideal because you will pay more in interest compared to a ten-year repayment plan, it could help make the payment more affordable.

What other debt do you have?

 
Credit card debt should always be at the top of your priority list. The sooner you can get rid of the double-digit interest, the better.

That’s easier said than done, though. $5,000 of credit card debt could feel insurmountable for one person while it may be possible for another person to pay it off in five months. It all depends on your income and your specific financial situation.

Understanding your cash flow is the first step to repaying credit card debt, or any debt for that matter. The only way to know what cash flow you are working with is by analyzing your income and expenses from the past few months. You can pull this automatically using Tiller and our automated budget spreadsheet.

Finding areas you can cut your spending is one approach to increase your cash flow. Other options include increasing income (my preferred approach) and cutting the interest rate on your debt. Using a personal loan to refinance your credit card debt at a lower interest rate is one strategy people use.

If you are feeling overwhelmed with the amount of debt you have, it may make sense to discuss your options with a debt lawyer. In this post I interview Leslie Tayne, someone I have gotten to know over the past few years and who I trust.

Assess your Job Situation

 
It’s always beneficial to assess your job situation, but typically when I talk about this I’m focused on compensation and whether you are getting paid as much as you should be. Changing the mindset to preparing for a recession also changes what you’ll focus on when assessing your job situation.

Here are a few questions to ask yourself:

• How transferable are your skills?
   
  Some of us have very specialized jobs. You may do a very specific type of accounting, for example, that is only a skill set that is needed by specific businesses in specific industries.
   
  If you have a specialized skill and you were to lose your job, would you be able to articulate how your broader skill set is transferable? Or would you struggle pointing to anything other than that one specific skill you built, that doesn’t really transfer to many companies?

• What skills or experience can you gain in the short-term to make you a more desirable job candidate?
   
  I encourage people to make it a habit of looking at job openings every few months, even when they are not looking for a new job. Why? Because you can see what skills and experience employers are looking for. If you have the skills and experience, great, if not you have time to get the skills and experience before you are actively looking for a new job.
   
  Like everything else, this becomes even more important with a potential recession on the horizon. To give yourself the best shot of staying employed during a downturn, understand what skills and experience your employer – and other employers – prioritize. Write them down. Make a plan for learning or expanding those skills. You may have to do some things that are uncomfortable, such as proactively seeking out public speaking opportunities, but it’s so much easier to work on these things now compared to after a layoff.

• Is your resume up-to-date?
   
  For most people it’s not that time-consuming to update your resume. At the same time, there are millions in the workforce who haven’t had to update their resume in five or more years, some even longer than that.
   
  It’s an easy thing to put off, so block off some time on your calendar within the next month and spend thirty minutes getting your resume up-to-date.

• Will your employer get hit hard during a recession?
   
  You may have heard the phrase “recession-proof.” Some employers are going to have business no matter what, and that includes industries like Health Care (providers) and IT. But other companies may be very sensitive to a downturn. Personal and corporate travel is something that will inevitably be pulled back in a recession.
   
  There are also some companies who may rely too much on one client or account. If the company loses that client, layoffs happen.
   
  Give some thought about how sensitive your company will be during a recession. At the very least it may motivate you to prepare.

Remember, because employers slam the brakes on new hiring during a recession there is going to more candidates for less jobs. The best way to prepare for this is being confident in the value you can provide an organization. If you don’t already have that confidence, spend time building the skills you need to succeed.

Calculate your “Bare Bones” Budget

 
Have you ever calculated what the absolute lowest amount of money you can live off of each month?

Most people haven’t. It can be a useful exercise, though, especially as we are potentially heading towards a recession.

The exercise is relatively simple. Look at all your spending from the past few months (I recommend using Tiller to do this automatically) and determine what you spend in an average month. Then, go category-by-category and see what you would spend if you had to cut everything out that you could. We’re talking Netflix, Hulu, restaurants, anything and everything possible.

The point of having this bare-bones budget is to give you confidence that you can weather a temporary loss of income through a layoff. Your emergency fund of three months may actually stretch to four or five months under a bare-bones budget.

Regardless of how much you can cut back, you need an emergency fund to avoid going into credit card debt during a layoff.

 
I hope this has been a helpful overview of proactive ways to prepare your finances for a recession. I think we can all agree there is always more that can be done. We don’t know when we will hit a downturn, but we do know that now is the time to prepare.

For those that can access and afford health care in the United States, many would argue that the US health care system is the best in the world. But what about those who can’t access care? Or can’t afford it.

The Affordable Care Act, more commonly referred to as Obamacare, greatly expanded access to the health care system. Today in the United States you are essentially guaranteed health insurance that does not – and cannot – discriminate based on pre-existing conditions.

Obamacare was a huge step for the country. For years health care was a personal issue for millions who had claims denied due to pre-existing conditions, or couldn’t access health care at all.

I have been priveleged in my life to always have insurance through my parents or an employer. If it wasn’t for modern medicine or health insurance, there is a good chance that I wouldn’t be alive today. I spent a week in the ICU years ago due to asthma. My memory of that night in the ER was one of slipping in and out of consciousness and having ten doctors surrounding my bed, treating what certainly was my airways closing in tightly, restricting my ability to breathe.

Later in life I had two sinus surgeries and received five years of allergy immunotherapy. If health insurance companies were able to discriminate based on pre-existing conditions I would have had to pay for all of it out of pocket, or put up with the ailments daily, with little relief.

Despite access, expanding, affordability is still a major issue with the US health care system. One of the great ironies of the Affordable Care Act is the fact that “affordable” is in the title.

One reason health insurers historically have been able to keep premiums and deductibles low is the fact that they could discriminate based on pre-existing conditions. Organ transplants and cancer care, for example, can cost $100k+ easily. Being able to deny those claims based on pre-existing conditions saves money. Being pregnant when you start your insurance plan was a pre-existing condition, making it possible for health insurers to deny claims related to the pregnancy.

If we are honest with ourselves we all know that discriminating based on pre-existing conditions shouldn’t be possible. Which brings me to my biggest complaint about health sharing ministries: they discriminate based on pre-existing conditions.

Health Sharing Ministries are not Health Insurance…or are they?

 
If you aren’t familiar with health sharing ministries, they essentially are a way for people to voluntarily band together and share medical costs among themselves. Legally health sharing ministries are not health insurance because they do not take risk. Health insurance involves an individual having a contract with a health insurer who is legally obligated to pay medical expenses based on the terms of the contract. Health sharing ministries are entirely voluntary and the health sharing ministry itself does not pay claims; they simply facilitate the spreading of the voluntary monthly contributions.

Because health sharing ministries do not take risk they are not regulated like health insurance companies. They can – and do – discriminate based on pre-existing conditions. Besides being required to cover pre-existing conditions, health insurers must also provide a certain minimum coverage. Health sharing ministries do not; after all, legally they are not health insurance.

The voluntary nature of health sharing ministries is important, as that aspect of it legally (key word: legally) puts it in a different category than health insurance. But there is no denying that health sharing ministries are being used in place of health insurance.

The reason why is simple: it’s cheaper!

Many (most?) who take advantage of health sharing ministries are not eligible for Medicaid or Medicare, and do not have health insurance through an employer. The remaining option is getting coverage on the individual insurance exchange that was created through ObamaCare. The problem is that this insurance can be expensive, with high monthly premiums and high deductibles, especially for middle class to upper middle class families whose income disqualifies them from subsidies.

It’s worthwhile to note that the pricing of insurance through the exchanges is not because companies are making billions of dollars on the exchanges. In fact, UnitedHealth Group, the largest health insurer in the United States based on membership, exited most exchanges after losing over $700 million on their exchange business in 2015. That means they needed to price the plans even higher just to break even.

Let’s put ourselves in the shoes of someone who faces a high cost to have health insurance through the exchange. Perhaps they utilize health care minimally and haven’t had an emergency or high cost episode (i.e. surgery, trip to ER, overnight hospital stay) in years. They eventually may look at their premium and deductible and think “this just isn’t worth it.” But let’s also say that individual or family doesn’t want to completely forgo the protections of health care coverage.

Cue health sharing ministries.

If you read the fine print of a health sharing ministry, they are able to keep their costs low by, in essence, shutting out those with pre-existing conditions. There are also a ton of things they don’t cover, such as durable medical equipment (nebulizers, hearing aids, oxygen tanks, ventilators), mental health care, and emergency room visits that were later determined to not be an emergency (from how I interpret section IV.B.9 you have to know prior to going to the ER that you are actually having an emergency).

See page 15 of this document from Liberty HealthShare (last accessed June 15th, 2019), which lays out the limitations on pre-existing conditions:

Pre-Existing Conditions. A condition for which signs, symptoms or treatment were present prior to application, or can be reasonably expected to require medical intervention in the future, need to be declared upon application for Liberty HealthShareSM membership, and updated with any new symptoms/signs or diagnoses that become apparent after the application submission. Failure to declare a medical condition upon application, or failure to update Liberty HealthShareSM after application, may preclude sharing in that condition any time in the future. Failure to fully disclose known or suspected pre-existing condition information at the time of application and before Enrollment Date is a violation of our shared trust between members and may subject the member to termination of membership. Chronic or recurrent conditions that have evidenced signs/symptoms and/or received treatment and/or medication within the past 36 months are not eligible for sharing during the first year of membership. In the absence of a Permanent Waiver, after the first full year of continuous membership, up to $50,000 of total medical expenses incurred for a pre-existing condition may be shared in total during the second and third years of membership. Upon the inception of the 37th month of continuous membership and thereafter, the condition may no longer be subject to the pre-existing condition sharing limitations. Appeals may be considered afor earlier sharing in surgical interventions when it is in the mutual best interest of both the members and the membership to do so.

In their defense, they do set a limit of $50k after one year of membership and after three years, the pre-existing condition is no longer subject to the $50k limit. But many who have pre-existing simply don’t have the luxury of being exposed to this type of risk. After all, even if you do last the three full years to have the pre-existing condition tag removed, there is no guarantee your bills will be covered by the health sharing ministry.

When you factor in all of the fine print of health sharing ministries, some of which would be illegal for health insurers to include in their plans, it’s obvious why health sharing ministries are affordable alternatives to traditional health insurance. So while it’s legally not health insurance, it’s absolutely being used by hundreds of thousands as a direct alternative to health insurance. Which leads me to my next problem with health sharing ministries: they hurt those who need care the most.

Health Sharing Ministries Hurt Those Who Need Care the Most

 
Affordable health care for all can only be achieved in a couple of ways:

• A large population with a mix of those with chronic healthcare conditions and those who are healthy

• Government subsidies that cover a portion of the cost of health care

The reason why health insurance through an employer is typically somewhat affordable is because the employer is paying a big portion of the costs. When you take the employer out of the equation, all the costs land on the individual. Combine that with the fact that Obamacare exchanges need time to stabilize from a cost perspective and it’s a recipe for what appears, on the surface, to be expensive health insurance. In reality a big contributing factor is the employer contribution not being present, which doesn’t show up in a paycheck.

In the same way the government could subsidize health insurance to make it affordable, and they do. ACA plans are subsidized based on income. Medicare and Medicaid are subsidized as well.

But what the individual exchanges need is more membership: healthy membership. The more members there are, the easier it is to manage the costs and contract for better pricing for the members. What health sharing ministries do, though, is draw membership away from the individual exchanges. But those who had cancer, or have asthma, or have any other number of pre-existing conditions simply can’t risk opting into a health sharing ministry because they risk financial ruin if a high cost episode occurs.

As a Christian I have a very difficult time viewing a health sharing ministry as virtuous. At the end of the day they operate very similar to health insurance, without having to abide by legal regulations that protect those who need health coverage the most. After all, for years people railed against health insurance companies (including many nonprofit health insurers) for denying claims based on pre-existing conditions. Yet health sharing “ministries” have essentially replicated the model of pre-ACA health insurers.

 
Any critique of health sharing ministries typically makes those who benefit from them defensive. They point out how unaffordable the Obamacare plans are, how much money they save through their health sharing ministry, and how they are healthy and don’t need that much coverage because they are healthy. It’s always interesting to hear these responses. My response is always the same: who are you trying to convince? When you look at the health insurance industry and health sharing ministries, no one (or almost no one) would argue with any of these points.

The issue is that many defenders of health sharing ministries will say that health sharing minstries are not insurance. But there is no denying they are using it as a low-cost health insurance plan. Legally it’s not health insurance, but for the individual participating in a health sharing ministry it looks and feels like health insurance.

T will close by saying there is no reason to take a critique of a health sharing ministry personally. Humans are going to act in their best interest, and for some health sharing ministries offer them affordable health “insurance” in case they face a high cost episode.

Similar to someone taking advantage of tax loopholes to save money, the critique of the tax loophole shouldn’t be on the individual but on the policy itself. Is it time for policy makers to take a second look at health sharing ministries?

Estimates of hundreds of thousands, if not more than a million, bankruptcies being driven by medical bills each year in the United States were common.

Regardless of what the exact number is, it doesn’t take a detailed analysis or understanding of the health care system in the United States to conclude that a lack of health insurance and, in turn, medical bills, drive bankruptcy.

Ever since the Affordable Care Act was passed a decade ago we’ve moved past the issue of pre-existing conditions not being covered, which certainly drove unaffordable medical bills. Think about it – if someone had previously had cancer so their health insurance flagged it as a pre-existing condition that they would not cover, it’s pretty obvious what would happen if the cancer returned. 99% of the population would find the out of pocket bills from cancer care to be unaffordable.

The Affordable Care Act gave us two important things: outlawed the practice of denying claims due to pre-existing conditions and gave everyone – regardless of employment – at least one option for health insurance coverage.

So are medical bills still driving bankruptcy in the United States?

The short answer is “yes, but it’s complicated.”

The simplistic way to tell whether medical bills are driving bankruptcy is by looking at bankruptcy filings and flagging whether or not medical bills are present. The problem with this approach is that it oversimplifies bankruptcy. If someone has credit card debt, a large mortgage, and a lack of savings, their bankruptcy filing may include medical bills but it may not be the leading cause.

But that doesn’t mean it’s not not the cause.

Before we dive into some of the dynamics of bankruptcy further I’ll share a story about health care and financial struggles that I heard recently that has really stuck with me.

A Story that Has Stuck With Me

 
If you’re from the Twin Cities (Minneapolis & St. Paul), you likely know of a morning DJ who has been on the air for over two decades, Dave Ryan. Each holiday season they do “Dave Ryan’s Christmas Wish” where they essentially surprise families with things like gift cards, presents for children, a Christmas tree, appliances, or any other number of things that they need to make their holiday season a little brighter. The families have typically gone through a rough patch and are struggling for various reasons.

These stories and the reactions they have to receiving these things can be real tearjerkers and difficult to listen to. After all, how many of us take the ability to put food on the table and purchase clothes for our kids for granted?

One story I listened to this holiday season has really stuck with me. The family was a single mother of three. One of her children had cancer. She eventually ended up losing her job because of the time she had to take away from the office to care for her child and be with him throughout his treatment. This stretched them financially and she ultimately stopped filling her own prescriptions to save money.

This is unfortunately common in the United States today. According to a study by Prescription Justice, 45 million Americans did not fill a prescription in 2016 due to cost.

The inability to afford prescriptions and ultimately forgoing them is one aspect of the story that sticks with me, but another aspect does as well: the woman lost her job due to caring for a sick child.

While I am unsure whether or not this family has declared bankruptcy, it’s difficult to imagine their finances will be able to hold up on unemployment long-term.

A Few Components to Bankruptcy

 
There are a few drivers that we can likely all agree can lead to or are a component of bankruptcy:

• Loss of Income (especially for a prolonged period of time)

• Unexpected Expenses (including medical bills)

• Unsustainable Debt

One reason why the cost of health care and its connection to bankruptcy gets so much attention is because of all the different ways health care can lead someone’s finances into a downward spiral. Here’s a few examples:

• Americans Typically are not Prepared for Unexpected Medical Bills
   
  The May 2018 Federal Reserve Report on the Economic Well-Being of U.S. Households in 2017 says that four in ten Americans could not cover an unexpected $400 expense without borrowing money or selling something. The trend in health insurance has been towards high deductible health plans, meaning you typically will have to pay something like $6,000 or even $10,000 before you’ve hit your deductible and your insurance kicks in.

  Not being able to pay for these unexpected medical bills is what turns them into medical debt. Again, this is debt that most people don’t think they will incur. So when they do incur it, it’s just one more challenge on what may already be tight financials.

• Loss of Income
   
  While a $50,000 medical bill someone who is uninsured may incur is obviously much worse than say $6,000 for someone who is insured and hits their deductible, that $6,000 bill can still be daunting for someone if they experience a loss of income.

  While there are some protections in place such as unemployment and welfare, it may not be enough for someone who experiences a significant loss of income due to a medical condition (or caring for someone who has a medical condition). The missing piece in health care policy is taking into account the potential for not only unexpected medical bills but also how the economic well-being of an individual or family may be impacted by a medical condition.

There isn’t a clear answer for how many bankruptcies have been driven by medical bills, but it would be difficult to argue that holistically the impact of medical conditions aren’t a primary driver for bankruptcy.

What Can You Do?

 
I am a policy nerd so I like thinking through macro-level solutions, but the action-oriented person in me also leads me to think through what someone can do at an individual level.

• Emergency Fund
   
  The need for an emergency fund can’t be stressed enough, yet I also know from personal experience how difficult it can be to build one. Regardless I think an emergency fund should take priority even over putting more than the minimum towards your debt.

• Medical Emergency Fund
   
  If you have a high deductible health plan, which typically means a deductible of at minimum a few thousand (and likely $6k+), you need a medical emergency fund. Again, I know how difficult it can be to establish even a primary emergency fund, but socking money away in a Health Savings Account is the only way to protect yourself against unexpected medical bills. Unfortunately with high deductible health plans you could be stuck with a bill for a few grand out of nowhere.

• Long-Term Disability Insurance
   
  One area where most people are probably under-insured is long-term disability insurance. Most employers offer this as a benefit, but I would bet most employees do not have a solid understanding of what is covered and how it works. I also think with a growing freelance/self-employed workforce there is a need for those individuals to look into their options in this space.

All of these suggestions are easier said than done, but they are things that you can work towards to help prevent bankruptcy from loss of income, unexpected medical bills, or otherwise.

There is clearly some huge challenges remaining for policy makers. We may have health insurance coverage options, but they aren’t affordable for most Americans. The Affordable Care Act also didn’t take into consideration how daunting even $500 in unexpected medical bills could be for individuals and families. And finally there is a huge issue of lost income and the lack of insurance/safety net for those who end up losing income from a medical issue.

Note: If you or someone you know finds themselves in a position where their debt is unsustainable, I recommend reaching out to a credit counselor through the National Foundation for Credit Counseling.
 
 

A lot of people complain about how much the big banks make in the United States. But do they really know how much they make?

I thought it would be useful to list out the top 10 biggest banks in the US and show how much they profited the previous fiscal year, which is 2016 as of this writing.

Keep in mind that this is just the 10 biggest banks in the United States, and the list is only made of publicly traded companies. I used total assets as the metric for “biggest.”

 
 
Yes, that chart shows a whopping $110 Billion in Net Income for 2016.

For some who review stocks and companies this isn’t too shocking of another. After all, these are the biggest banks in the United States, so you’d expect to see some pretty large numbers.

At the same time many people would agree that banks aren’t that innovative. Many have similar functions and I think most consumers would have a difficult time pointing out what makes one bank preferable to the other.

Needless to say it’s an industry that is in need of innovation. Can ten big banks really sustain $100B in annual profits? Innovation that cuts into these profits is inevitable.

But what’s a consumer to do in the meantime? What if you don’t want to support these huge banks?

The beauty of a free market is we can oftentimes choose to participate or not. If you think a company pays their executives too much, you can sell your shares or not even buy them in the first place. Or you can choose to not purchase their products.

Consider Alternatives

 
Big banks are hardly the only option when it comes to banking. One alternative that continues to grow is credit unions. A credit union is a member-owned financial co-operative. These institutions are created and operated by members and profits are shared among the owners.

Read our post that compares credit unions and banks to find out more about how the two differ.

One thing to note is that credit unions don’t necessarily differ from banks when it comes to employee compensation. Executive compensation can go above and beyond $1 million a year. Keep in mind that banks and other credit unions are all competing for the same pool of talent, so compensation aligns to that reality. It’s why University heads can make in excess of $1 million a year as well, despite most colleges being nonprofits.

Another alternative is local and regional banks. There has been some consolidation in this space as laws have made the banking industry more favorable for bigger banks, so you may be faced with somewhat limited options. Regardless there are still some banks that exist that are smaller and more localized that can be a decent alternative to going to one of the bigger financial institutions.

Support Innovation

 
Innovation has been seriously lacking in the banking industry. The internet has created new opportunities, though, where startups can disrupt the banking industry with new offerings.

I’m a big fan of companies cutting out unnecessary costs and passing along the savings to consumers. For example when I see huge corporate offices where employees literally work on computers all day and meet on conference calls I can’t help but think having everyone work from home would allow employees to be compensated better, cost savings to customers, or both.

Banks have huge real estate footprints, especially the big banks in the United States. While I realize there are services that need to be performed in person, such as depositing cash, I think most banks would save millions and millions if they reduced their real estate footprints and were more strategic about what real estate they actually need.

Banks perform much of the same functions and there are usually few differences between them. They usually charge monthly fees for checking and savings accounts, and most have lousy interest rates.

But what if a company could drastically reduce costs and pass those savings on to consumers? Chime is one of those new, innovative companies that is looking to disrupt the banking space. They do not have the huge real estate footprint that big banks have and are able to pass these cost savings to consumers.

They have an automatic savings program that rounds up every purchase up to the nearest dollar and deposits the difference into your savings account. Additionally they have cash back rewards (rare for a bank), no minimum account requirement, and no overdraft fees. You can find out more and get a free $5 for opening an account.

A couple of other companies that are innovating the banking space are Debitize which helps people avoid credit card debt but still benefit from credit card rewards, and Self Lender which helps people increase their credit score.

Cut Debt

 
The easiest way to not use big banks is to cut your debt. I’ve heard many debt payoff stories where banks are less than thrilled to find out that someone is paying their debt early. Banks make a lot of money by people being in debt, whether it’s through mortgages, personal loans, or credit card debt.

Taking positive steps to decrease your debt is a good way to directly impact the profits that banks make. Private student loans in particular irritate me as my wife had some through Wells Fargo and they clearly were making a considerable profit off of her loans based on the relatively high interest rates.

If you want to cut the amount of debt you have and/or the interest rate you have on your debt, here’s a few posts I recommend checking out:

• 12 Tips for Paying Off Debt Faster

• 5 Ways to Lower Your Interest Rate on Your Debt

• How to Avoid Taking on More Debt

• 10 Habits to Develop to Get Out of Debt

• $100k in Student Loan Debt: What I Did About It

 
 
What do you think about the profits big banks make? Are you comfortable supporting them or do you prefer alternatives like credit unions?
 
 

For centuries in the United States, and millennium, in other areas of the world, currency has been controlled by governments. Governments control the production of currency and make it illegal for there to be “unofficial” currency. Interest rates today are set by a small group of central bankers.

Bitcoin has the potential to change all that. Just under six years old, bitcoin was introduced as an open-source software in 2009. Bitcoins are based entirely “online” and there is nothing material backing them.

The biggest appeal of bitcoin to retailers is the promise of low transaction costs. Because it is a digital currency it offers the convenience of not having to deal with physical currency, which would require a bank to process transactions. With no central repository, bitcoin allows for transfers at a low cost. This is good news for many businesses.

The big challenge for bitcoin is this: will bitcoins be widely accepted?

Challenges facing bitcoin

With any new idea, there are many challenges facing bitcoin. They include:

• Price volatility – It has been said that bitcoins are seven times as volatile as gold. Gold is historically a fairly volatile investment, so volatility is clearly an issue for bitcoin. Currency fluctuations are natural since they are a product of supply and demand, but ultimately you would hope that a digital currency like bitcoin could operate in a much less volatile fashion.

• Theft – Because bitcoin users are given a high level of privacy, it can be difficult if not impossible to recover stolen bitcoins. Bitcoin transactions are irreversible and the identity of users involved is extremely difficult to identify. There have been a couple of high-profile thefts in recent times, one being the theft of over $100 million worth of bitcoins from Sheep Marketplace.

• Investment Bubble – Many have said that bitcoins are becoming an investment bubble, including the well-known economist Robert Shiller. Because the production of bitcoins is limited and becomes more and more difficult, people are potentially paying more for bitcoins than they truly are worth. This could eventually cause a price correction, significantly dropping the value of all bitcoins.

These are just a few of the challenges that bitcoin faces as it tries to play a bigger role in the global economy. There are of course many advantages – such as the ability to be “outside” of the establishment or of any single country. The decreased regulation allows for bitcoin to subject itself more to the supply and demand of the market which, in theory, would make it a stable store of value that is not subject to

Will bitcoins be widely accepted?

The most difficult challenge facing bitcoin is whether or not it will be able to gain widespread acceptance. While there are many smaller retailers who have started to accept bitcoins, bitcoin needs the larger retailers to get on board for it to become a widely accepted currency.

As of today, the following large companies accept bitcoins:

• Atomic Mall
• Clearly Canadian
• Dell
• Dish Network
• Expedia
• Newegg
• PrivateFly
• Overstock.com
• the Sacramento Kings
• TigerDirect
• Virgin Galactic
• Zynga

Keep in mind that as of this writing bitcoin is not even six years old. The progress that has been made in the past six years alone is remarkable. There are challenges ahead, but it seems like bitcoin is here to stay.

If you live in the United States, starting in 2014 you will be required to purchase health insurance or pay a fine. The question is: will young adults opt-out and pay the fine?

This is one of a number of economics-related lessons that can be taken away from the Health Care Reform law. Today I will discuss this along with another one, higher (unsustainable?) government spending, as well as a few other things we will see as a result of reform.

Get Insurance or Pay Fine?

In Capsules, the Kaiser Health News blog, Susan Jaffe raises this very question:

If young adults can’t afford health insurance policies available in 2014 under the health care law, state insurance officials are worried they won’t buy them. And that could drive up the cost of insurance for the mostly older, sicker people who do purchase coverage.

That’s a potential problem even in states like California and Rhode Island, which are moving ahead to carry out the law, state officials told representatives of the Obama administration Friday at a meeting of the National Association of Insurance Commissioners. They said they’re concerned that young people facing insurance “rate shock” may opt to pay a relatively modest penalty — $95 in the first year — rather than pony up thousands of dollars to purchase coverage.

Whether we recognize it or not, every single day people run opportunity cost equations in their head. When it comes to whether or not to purchase health insurance under the new Health Care Reform law, Young Adults will compare the cost of premiums versus the cost of paying the fine for not having insurance. Among economists and casual observers, there are many who think that the fine is too low.

Also factoring into this equation is that insurers can’t deny coverage people based on pre-existing conditions, and under the new law no one is supposed to go bankrupt from medical bills. Young Adults – or people in general – may forego purchasing health insurance until something happens where they absolutely need medical care. When that scenario arises, they will simply log in to their state’s health care exchange and purchase insurance. Since you are guaranteed coverage, why purchase until you really need it?

Higher Government Spending

If you expand health coverage to millions of additional individuals, including some who are unable to afford care in the first place, someone is going to have to pick up the tab. In this case, it’s going to be the government and in turn, taxpayers. We can argue about whether or not health insurance is something that should be a priority for our nation, and whether or not there are other solutions besides government subsidizing health insurance, but in the end the reality is that there will be higher spending.

A basic law of economics is that we live in a world of scarce resources. There are not enough resources to fulfill every individual’s every need and want. On an individual scale, people need to pay off their debt and do not have an unlimited credit line like the federal government. If the government is going to take on this higher spending, they are going to have to either increase the amount they are bringing in via taxes, decrease spending elsewhere, or both. As most of you know, the federal government hasn’t lived within their means for quite some time…and one day they will have to deal with their spending problem whether they like it or not.

I am not faulting Republicans or Democrats in this case – Republicans argue that we can’t afford the Health Care Reform. In reality it’s not necessarily that we can’t afford it, it’s that we can’t afford everything in our current budget PLUS the health care reform bill. But then again, we can’t afford our current budget even without Health Care Reform and both parties have had bipartisan support for spending borrowed money. There isn’t an unlimited amount of money or resources, and at some point spending will need to prioritized.

What else will we see as a result of Health Care Reform?

• One thing we will certainly see is more resources being poured into the health insurance/health care/medical device industry. As I just mentioned, these additional resources will have to come from somewhere; money (which really is simply a representation of value) does not come out of thin air.

• We will see a shift over the next few years of decreased employer-sponsored coverage and increased coverage through the state health care exchanges.

• Finally – and this is more my opinion than anything – a few aspects of the health care law will remain in place regardless of which party has power or what changes politically: coverage for dependents up to the age of 26; not allowing refusal of insurance because of pre-existing conditions; subsidized health care coverage.

There are a lot of expected and unexpected consequences of Health Care Reform. Some of these consequences are good and will prevent things like bankruptcy from a medical procedure related to a pre-existing condition; others are bad like spending that hasn’t been accounted for.

Needless to say, it will be interesting to see how reform plays out and how people react to the changes.

To my American readers: will you opt out of health insurance in 2014?

Or a really fun question: If you had the ability to choose…what cuts would you make to the federal budget?
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Photo by Elmira College