3 Things 2-6

Thing One The Practical Effects Of Rising Interest Rates The Federal Open Market Committee (FOMC) raised its benchmark rate by a quarter of a point last week. As a result, the federal funds rate, which is the interest rate that depository institutions—banks, savings and loans, and credit unions—charge each other for overnight loans, now stands at 4.58%. Bankrate.com reported on some of the practical effects of actions by the FOMC. We've highlighted some key points below: "...Higher Fed interest rates translate to more expensive borrowing costs to finance everything from a car and a home to your purchases on a credit card (see chart below). That’s because key borrowing rate benchmarks that influence some of the most popular loan products — the prime rate and the Secured Overnight Financing Rate, or SOFR — follow the Fed’s moves in lockstep. You might not be able to borrow as cheaply as you used to before a Fed rate hike, but higher interest rates do have some silver linings, especially for savers: As banks turn more to consumer deposits to fund loans, they ultimately end up increasing yields to attract more cash. Cheap borrowing rates often bode well for investments because they incentivize risk-taking among investors trying to compensate for lackluster returns from bonds, fixed income and CDs. On the other hand, markets have been known to choke on the prospect of higher rates. Part of that is by design: Essentially, the U.S. central bank zaps liquidity from the markets when it raises rates, leading to volatility as investors reshuffle their portfolios. It’s also because of worries: When rates rise, market participants often become concerned that the Fed could get too aggressive, slowing down growth too much and perhaps tipping the economy into a recession. Those concerns battered stocks in 2022, with the S&P 500 posting the worst performance since 2008 in the year. For those reasons, it’s important to keep a long-term mindset, avoid making any knee-jerk reactions and maintain your regular contributions to your retirement account..." In addition to echoing bankrate’s sentiment regarding the importance of a long term investment orientation, we’ll also remind you that you should always be open to switching to either a credit union or an online bank to take advantage of the higher savings rates and lower financing costs that can typically be had with them versus the traditional banks. Please pass it on.

Thing Two Rethinking The Need For A College Degree For a long time, the idea that choosing not to attend college was a very expensive mistake has been the consensus point of view. As a result of that idea and government intervention (via the federal student loan program), college costs have skyrocketed. One study done a couple of years ago described just how bad the situation would be for someone born in 2018: “…According to the College Board, a newborn child (2018 birth) that is expected to attend college in the fall of 2036 and that child attends the average 4 year in state school (approximately $21,257 tuition today) and the school experiences the average 5.4% tuition increase will have a college tuition bill of $237,267 or $59,315 annually which includes room, board, tuition and fees.” The costs are clearly on an unsustainable path and, as a result, consumers are starting to reconsider the value of a college degree and employers are starting to consider “alternative credentials”. A recent Wall Street Journal article touched on the topic. See an excerpt below: “…The Society for Human Resource Management conducted a survey in July 2021 on the views of employers and employees about these kinds of alternative credentials. The survey found that 94% of executives, 93% of supervisors, and 91% of human resources professionals see people without a degree and holding only alternative credentials “to be about the same or better than those who only hold traditional educational backgrounds.” Alternative credentials are already held by 45% of workers, while 49% are considering earning one. Another possibility is that America’s employers and workers could consider, in many fields, simply junking the four-year system. The rising price of education, and the resulting national student-debt crisis, has cost Americans $1.75 trillion, up from $481 billion in 2006. Over the last 20 years the average cost of college tuition and fees at public four-year institutions has risen 179%—for an average annual increase of 9%, outpacing inflation by 171.5%….In January, Pennsylvania’s new governor, Josh Shapiro, signed an executive order eliminating the requirement of a college degree for 65,000 state jobs. It’s a move that will probably be followed by governors in more states facing tight labor markets…” It has taken long a long time to happen, but maybe the old saying, “The cure for high prices is high prices” is finally beginning to apply to college costs. Let’s hope so.

Thing Three Just A Thought "One of the things I feel is that, right now, if you ask who are the customers of education, the customers of education are the society at large, the employers who hire people, things like that. But ultimately I think the customers are the parents. Not even the students but the parents. The problem that we have in this country is that the customers went away." - Steve Jobs