The big economic news this week is the May unemployment report, which comes out Friday morning and is expected to show that the jobless rate topped 9% for the first time in a quarter century. Bad news indeed but employment is a lagging indicator of how the economy is doing and even as the unemployment rate climbs toward double digits, the pace of job losses is slowing markedly.

For a better sense of what lies in our economic future, check out two other economic reports and an employment survey of large companies out Monday.  These paint a more telling and sobering picture of the future as it affects you and me.  First, there’s the news that frugality continues to reign. In April, consumers once again cut back spending, with consumer expenditures down 0.1%.  That’s the second straight month that consumer spending dropped after a burst of buying in January and February as shoppers took advantage of deeply discounted goods. Meanwhile, personal income was up 0.5% in April but that was largely due to tax cuts and stimulus payments from the government. Which is why it’s no surprise that Americans’ personal saving rate soared to 5.7% in April, the highest level since 1995, according to the Commerce Department.  People are worried about losing their jobs, so they’re socking away more money.

All that’s well and good – people are spending less and saving more.  But even if you don’t lose your job and the economy continues to improve (which the stock market certainly seems to be anticipating after hitting its highest point since January today), a more worrisome trend is what’s happening with wages.  Wages and salaries remain flat and for many people, lower. That’s because in this recession, companies not only are cutting staff, they’re slashing salaries too. According to a survey by outplacement (that’s a nicer word for companies that specialize in helping people who have been laid off find jobs) consultants Challenger Gray & Christmas, more than half of human resource executives surveyed in May said their companies instituted salary cuts or freezes to cut costs, up from 27% in January. While salary cuts and furloughs are preferable to outright job cuts, the trend has major implications for what kind of economic recovery we can expect.  If people who hang onto their jobs or get laid off and get a new one can’t count on their earnings growing, they’re going to keep being thrifty. And without a real rebound in consumer spending, it’s unlikely we’ll have a strong economic recovery. Have you had your salary cut? Or been furloughed? Have you cut back your spending? Tell us what’s happening with you.

- Donna Rosato

You’d think in a year when major banks received billions in taxpayer aid and face billions more in defaults on credit card debt, tackling anti-consumer practices by credit card issuers would be a slam dunk in Congress. There’s certainly been lots of buzz about changes coming to the credit card industry, served up by feisty Democrats eager to show American consumers that they’re looking out for the little guy. The House approved Rep. Carolyn Maloney’s Credit Card Holder’s Bill of Rights in late April and this week, the Senate is wrangling over Sen. Christopher Dodd’s Credit Card Accountability, Responsibility, and Disclosure Act.   It’s strong sounding legislation but the powerful banking lobby is hard at work on Capitol Hill trying to water down the toughest provisions. Unfortunately for consumers, the bank lobbyists are having some success.

Here are just a few provisions that have been dropped or not made it out of committee:

• Speedy reform. Maloney’s original bill included a provision that would require card issuers to implement changes within 90 days of the bill becoming law. Maloney’s bill is very similar to new regulations that the Federal Reserve approved in December , including banning card issuers from raising rates on existing balances unless your payment is late and giving consumers more time to make payment before fees kick in. All that’s good but the Fed’s new rules don’t kick in till July 2010. And ever since the Fed regulations were made public in December, credit card users have been slammed with rate hikes and higher fees, which consumer advocates say is a purposeful move by banks to soak consumers before the new rules kick in.  Now the only part of Maloney’s bill that will go into effect within 90 days of signing is a provision that would give consumers 45 days notice that their rate is being increased.

• An end to universal default and multiple overdraft fees. According a report in the Huffington Post, an earlier version of Dodd’s bill explicitly prohibited universal default (that’s when a card company raises a user’s rate when they are late paying another creditor) and limited the number of overdraft fees that hit a cardholder when a cardholder goes over their limit. The latest version contains neither of those provisions.

• A cap on rates. Sen. Bernie Sanders, a Vermont Independent, proposed a provision that would cap credit card interest rates at 15%. Noting that one-third of credit card holder’s pay interest rates higher than 20% and up to 41%, Sanders said this would end “loan sharking” by banks and consumer advocates said the provision would put real teeth in the bill. That effort was defeated last week.

President Obama asked Congress to deliver a credit card reform bill that he can sign by Memorial Day, one that would provide “strong and reliable protections for consumers.” Sure some reform is better than no reform. But let’s hope the legislation that lands on President Obama’s desk is still worth signing. Tell us: What do you think would be the most effective change to credit card practices?

- Donna Rosato

Move over, The Money You Could Be Saving With GEICO. Obama trumped the poor little fellow with googly eyes when he announced earlier this week that bigwigs in the medical, hospital and insurance industries had pledged to him that they could shave some $2 trillion off our nation’s health care costs over the next ten years.

Naturally, any time a government official says he can produce $2 trillion out of nowhere, it’s hard not to be a little suspicious.

Indeed, Republican Senator Chuck Grassley quickly issued a statement essentially saying: We’ll believe it when we see the details. On the National Review Online, meanwhile, conservative economist Larry Kudlow declared that Obama’s plan would “bankrupt the nation.” (Rush Limbaugh, meanwhile, compared Obama to Don Corleone.)

At the other end of the political spectrum, a blogger for the Leigh Valley Pennsylvania Express-Times wondered how it was that the health care industry could suddenly find $2 trillion in savings. If all that free money is just sitting there, he wondered, doesn’t that suggest that “they’ve been stealing from us for all these years[?]”

It’s not quite as simple as that, of course, and the health care industry isn’t quite as villainous as the blogger makes it out to be. But he’s right about one thing: the trillions in savings may actually be more than a pipe dream.

The confidence that Obama and other in his administration have that big savings in health care are possible stems from their reading of some very interesting research conducted over the last couple of decades at Dartmouth. Led by researchers Jack Wennberg and Elliott Fisher, the folks at what’s called the Dartmouth Atlas of Health Care found out two very interesting things when they began examining regional patterns of health care spending.

First, they discovered that spending varied tremendously from city to city, region to region, and that much of this variation had nothing to do with demographics or any other factor that might logically explain the differences.

Second, they discovered that those regions that spent the most on health care didn’t actually get better results than the regions where spending was much lower. Patients in the high-spending regions got more MRI scans, and spent more time in the hospital, but all that extra attention didn’t make them any healthier. More money, in other words, didn’t mean better health care.

That’s the glass-half-empty way of looking at it, anyway.

The glass-half-full way suggests something rather extraordinary: if we can figure out what the more effective hospitals are doing right, we could save a lot of the money we now waste on ineffective care. We could get the same or even somewhat better results than we get now, while spending a great deal less — by some estimates, as much as a third.

Of course, getting to this rather utopian state of affairs will require a lot more than mere pledges like the ones Obama got this week.

For more of the gory details of the research and the reforms that may come out of it, check out this story in Dartmouth Medicine by health journalist Maggie Mahar.

Researcher Fisher points out a few options in this New York Times roundtable; if this merely whets your appetite for more, check out the white paper titled “An Agenda For Change” on the Dartmouth Atlas’ own web page.

In any case, you can rest assured that you’ll be hearing a lot more about this research in the months and years to come.

–David Futrelle

Chrysler’s plan to shut down 789 dealerships, about a quarter of the car company’s franchises (see related news story here), may have you wondering: What does this mean for me? Let’s break it down like this:

If you own a Chrysler, Dodge or Jeep: Your biggest issue is likely convenience, says Philip Reed, consumer advice editor for Edmunds.com. A factory-backed warranty will be honored at any of Chrysler’s remaining authorized dealerships. You may just have to travel farther for service.

The one exception: if you bought a service plan, extended warranty or a pre-owned certified vehicle backed by the dealership or a third party, not Chrysler. In that case, there’s no guarantee your agreement will be honored at other dealerships. And in the past, says Reed, “there have been reports of dealerships going out of business and leaving people out of luck.”

Take heart:  Even if a dealership is axed, it may not go out of business, says Reed. The dealership could turn into a service center or a used-car shop, and, as a result, continue to honor its contracts. Joe Wiesenfelder, senior editor at Cars.com, also notes that these are “extraordinary circumstances.” There’s hope, he says, “that other dealerships will honor those [third-party warranties].”

If you want to buy a Chrysler, Dodge or Jeep:  According to Chrysler’s proposal, dealerships would close by June 9. That means there’s less than two months to unload inventory (only authorized dealerships can sell new cars). So look for discounts on top of existing incentives–today, as much as $4,000 in cash rebates–offered by Chrysler. “If you’re shopping,” says Wiesenfelder, “chances are you can get a good deal.”

A word of caution: Make sure the warranty you sign up for is factory-backed. That way, it will be good at any dealership. Also, don’t get caught up in the lure of a good deal. First, find a car that fits your needs. Then start negotiating.

-Carolyn Bigda

By Jeanne Fleming, Ph.D. and Leonard Schwarz

Question: My fiancé’s wealthy aunt and uncle agreed to let us use their beautiful lake-view home for our wedding, and we’ve sent out the invitations. But now they’re insisting that each guest sign a form releasing them from any liability in the event of an accident. I’m appalled. Are they being unreasonable, or am I just naive?

Answer: You’re naïve only if you imagine that liability isn’t an issue here, because it is. Too bad no one thought of it before the invitations went out. We’d place most of the blame for that on your fiancé’s aunt and uncle, as presumably they’re worldlier, as well as wealthier, than you. But we can’t blame them for getting nervous, especially if you’re planning to serve alcohol.

So where do you go from here? These folks are sure to have homeowners’ insurance, and it almost certainly covers personal liability. If they don’t realize this, a call to their insurance agent may put their minds at ease.

If it doesn’t, talk to your insurance agent about “special events coverage.” A one day policy will insure your fiancé’s aunt and uncle against any liability arising from your wedding and will cost you a lot less than a ballroom or banquet hall.

If neither of these approaches satisfies them, then we’d agree: Your fiancé’s relatives are being unreasonable. It’s one thing to be more-than-a-little late in raising the liability issue. But once the invitations go out, it’s wrong to insist that your guests sign the kind of legal document they might expect to be handed were they signing up for skydiving lessons, not attending a wedding.
Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

Well, Schwab can’t do anything about the stock market, but the the financial services company can make it cheaper for people to invest. This morning, the mutual fund operation of Charles Schwab made deep cuts in the expense ratios of its equity index funds and lowered costs throughout its fund family for individual investors.

The news comes only one month after Morningstar forecast that mutual fund expense ratios will rise in 2009.

Under its new pricing, Schwab is giving all investors in a given fund the same expense ratio, whether they’re making the minimum initial investment of $100 or investing a larger amount. For example, expenses for a small investment in Schwab’s popular Dividend Equity fund will drop from 1.04% to 0.89%, a ratio previously available only to people with a minimum investment of $50,000. Ratios on other funds will have higher drops: For small investments in the Schwab Fundamental U.S. Large Company Index fund, expenses will go from 0.59% to 0.35%.

Playing a game of expense-ratio limbo with other brand-name mutual fund giants–and with ETFs, such as the SPDR S&P 500, that are stealing dollars from index mutual funds–Schwab is claiming the industry’s lowest expenses in three categories of index mutual funds: the S&P 500, the total US stock market, and small-cap stocks. For example, Schwab’s S&P 500 Index fund, which used to have an expense ratio of 0.36% for small accounts, now has an expense ratio of 0.09%. The expense ratio for the Vanguard 500 Index fund, which has a minimum initial investment of $3,000, is 0.15% for most individuals, while the Fidelity Spartan 500 Index–a $10,000-minimum fund–has an expense ratio of 0.10%.

“This is not a promotional offer or anything like that,” said Schwab’s Peter Crawford, senior v.p. of investment management services, at a press conference Tuesday morning. “These are permanent reductions.”

Granted, Schwab’s index fund expenses may not have the absolutely lowest expense ratios out there. If you’re lucky enough to have at least $100,000 to invest, your Vanguard 500 Index Admiral Shares will have a ratio of 0.07%. The SPDR S&P 500, by the way, has an expense ratio of 0.0945%, but you’ll have to pay brokerage commissions on any transactions.

Keep in mind, also, that some of these numbers won’t exactly right all the wrongs the stock market has recently inflicted on your portfolio. On an investment of $10,000, a 0.09% ratio on Schwab’s 500 index amounts to expenses of  $9 a year, compared to the $15 you’d be paying if you were holding Vanguard’s index shares. In other words, you’d be saving yourself $6 a year. That’s not quite enough to turn your retirement picture around, but maybe it would make an appreciable difference in your investments given enough time and money in the market.

And who knows? Maybe this will be the first round in a mutual-fund price war. That’s a battle all investors would be happy to see.

Investors who want to hedge against inflation while still earning a decent return on their investment got some unhappy news Friday: The U.S. Treasury announced that buyers of its Series I U.S. Savings Bonds – 30-year bonds whose returns are adjusted for inflation – will earn nothing on I-bonds issued between now and October 31 of this year. That’s right: nada, zilch, zip.  This marks the first time that I-bonds have had a zero rate of return for any six-month period since I-bonds were created in 1998.

Blame inflation or the lack of it: Consumer prices have plummeted since the economy ground to a halt last fall and the U.S. remains mired in recession.  The  Consumer Price Index plunged 5.6% from September through March, according to the Treasury. I-bonds have two components:  a fixed rate of return, which is 0.1% on newly issued bonds (down from 0.7%) and an inflation adjustment, which thanks to negative inflation wipes out the fixed return for the next six months.

Of course, low prices can be a good thing. Cheap gas, less costly heating oil and lower food prices ease some of the strain of the recession on consumer wallets. But longer-term, there are a lot of folks who are worried that the government’s massive spending to battle the recession will ignite inflation in the next few years and they want to hedge their portfolios against that scenario.

So, what should you do to protect your savings if you’re worried about inflation roaring back in the not too distant future but can’t stomach the thought of a zero return on an investment? If you already own I-bonds, hang onto them. Prices will pick up soon enough and you can wait out a six-month period of zero returns (rates on I-bonds are adjusted twice a year in May and November). Remember, you can never lose your principal investment in I-bonds. And if you do cash in your I-bonds and have held them less than five years, you’ll pay a penalty of three-months interest.

But if you’re looking for a way to hedge against future inflation and aren’t already sunk into I-bonds, Treasury Inflation Protected Securities, or TIPS are a better strategy now. As a good piece on Motley Fool points out, the real rate of return on I-bonds has been steadily declining over the past decade, as high as 3.6% but just 0.1% today. As my colleague Janice Revell points out in this video on TIPS, TIPS are historically cheap,  yielding a real, after-inflation return of 2%. Not a bad return for an ultra-safe investment that can protect you against future inflation. You can buy TIPS directly from the Treasury so you don’t have to pay any commission. One tax consideration to keep in mind: You can defer interest on I-bonds for the life of the bond, which means you can earn interest for up to 30 years without paying income taxes on that interest. But the interest on TIPS is taxed every year, so you’re best off holding TIPS in a tax-deferred account like a 401(k) or IRA.  – Donna Rosato

If financial misery loves company, you’ve got a surprising amount of it among wealthy folks–the people who you’d think would feel comfortably insulated from the current economic crisis.

That’s a key takeaway from a survey just released by the Phoenix Companies, a financial services firm which conducts an annual poll of well-off Americans–those whose net worth, excluding the value of their primary home, amounts to at least $1 million.

In the survey, conducted by Harris Interactive, participants were probed about one of those primal fears that affect anyone thinking about retirement–the possibility that your money won’t last as long as you do. Specifically, they were asked whether they agreed with the statement, “I am very concerned about outliving my money in retirement.”

The response was surprising. Forty-five percent of these millionaires said yes: They either “agreed” or “agreed strongly” with that idea.

Okay, maybe you’re thinking that’s not so surprising. Say, for example, you’re a 55-year-old with $1 million, you have a mortgage, you have three kids to send to college, and you’re wondering whether you’ll be laid off next week. In that case, One…Million…Dollars may seem laughably inadequate, just as it was in the first Austin Powers movie.

But you can’t explain away all the numbers that easily. Thirty-five percent of respondents worth $5 million or more were concerned about outliving their money. Think about it: One-third of the people worth at least five million bucks are just as worried retirement as you or I (assuming, of course, that you, like me, aren’t among the penta-millionaires). If you ever needed proof that, once you’re above poverty level, money doesn’t buy peace of mind–well, there it is.

Also surprising is the pessimism among younger millionaires: Sixty-one percent of the rich folk age 45 or younger fear outliving their money, compared to a mere 32% of millionaires age 65 or older–the very age group for whom running out of money in retirement is a real, immediate concern, not just a theoretical possibility somewhere off in the future. And, again, it’s not a question of money: Sixty-percent of younger millionaires worth more than $2 million are worriers, compared to 42% of older millionaires worth less than $2 million.

Why are the youngsters so glum? It’s likely a bunch of reasons, says Walt Zultowski, senior v.p. of research and concept development at Phoenix. Thanks to advances in medical technology, these younger millionaires will likely live to an advanced age, and thus have to pay for an extended retirement. They’re worried they’ll have to support elderly parents, too. They’re expecting Social Security benefits to be cut back. They’re worried about major economic downturns between now and their retirement. And they’re getting hit with a vivid, first-hand look at an older generation forced to scale back its retirement plans because of an economic meltdown.

So what’s more justified–youthful pessimism about retirement savings, or elderly optimism on the same subject? The answer, unfortunately, is unclear. “The younger folks’ concerns are legitimate,” says Zultowski. “On the other hand, maybe they underestimate their own earnings power and the power of wise investments over several decades.”

A nugget of wisdom that Warren Buffett has passed along more than once to Berkshire Hathaway investors is this: “You only find out who is swimming naked when the tide goes out. “ What the oracular Omahan seems to have meant by this is that you don’t really know or appreciate the risks that companies are taking until they are tested by adverse conditions–a corollary to the saying that everyone looks like a genius in a bull market. Buffett  used the line a year ago, for example, in reference to the follies of large financial institutions exposed by falling home prices.

While the tide-going-out phenomenon clearly applies to companies, it is relevant to personal finances as well. In a booming market and a booming economy, we don’t have to worry so much about our debt, our obligations and our expenses and our safety net. We don’t have to worry so much about where that last penny goes, because there are a lot more pennies and dollars on the way. But when times get tough, we discover out that we are the ones swimming naked: Gosh, I guess I shouldn’t have tilted my portfolio so much toward stocks. You know, I’m spending a lot of money each month on my health club membership, and I hardly ever go. And, hmm, is that all the cash I have on hand? I guess I’m living closer to the edge than I thought.

So, with the benefit of 20/20 hindsight, what have you learned about your own bathing suit,  or lack thereof? What were the major risks you were taking with your personal finances, and did you even realize it at the time?  I’m curious to know what you’ve discovered as the tide has fallen.

There are some ads for Citibank out now which annoy me nearly as much as those AIG ads I posted about a little while ago. In the ads — arty productions, with up-to-the-minute indie rock soundtracks — an assortment of everyday people pass on their little money-saving tips to friends. One guy tells an officemate he’s started biking to work. A woman in an elevator suggests buying only solid colored wrapping paper — “it’s good for every occasion.” Another woman confesses that she takes those little shampoo bottles from the hotels she stays at. “We all have to spend,” a confident voice asserts, at the end of the ads. “So let’s be smart about it.”

Go here to see one of the ads.

Excuse me?

So this is Citibank’s response to financial-crisis-cum-economic-meltdown that it helped to inflict upon the rest of us? To take $45 billion in bailout money — and then to tell us to save our freaking shampoo bottles?

You know what doesn’t cost very much, when you add it all up at the end of the year? Shampoo. (See if you can even find the “Hair, Dental and Shaving Products” category in the infographic here:

You know what does cost very much — I mean, aside from that $45 billion bailout? The amount of money Americans spend on credit card interest and fees. Heck, the typical American family pays out $1600 a year in credit card interest alone. The best way to spend smart? Don’t do it with a credit card! (See here for advice on how to break free from the tyranny of the little plastic cards.)

If the Citibank ads haven’t yet sated your hunger for stupid money-saving hints, here are a few more, free of charge:

1) Make rugs out of old socks.

2) Turn your old shoes into planters.

3) Assemble your own envelopes out of old magazines and scrap paper.

4) Transform your old teabags into colorful greeting cards.

I got 45 billion of ‘em.

–David Futrelle

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: A good friend is investing $25,000 in an alternative-energy deal that looks very promising. He says he can arrange for me to get into it, but in exchange he wants 10% of whatever profit I make. I think he’s being incredibly greedy, but he says that he deserves to be compensated for opening an otherwise closed door. Does he?

Answer: If the dealmaker’s name is Madoff, run. And even if it’s not, remember: While alternative-energy projects have a certain cachet these days, so did hedge funds and Las Vegas real estate not that long ago. In short, caveat investor.

Should you still decide you want in, however, it’s not unethical in the business world to compensate someone for opening an otherwise closed door (bribes are another story). But to flip Michael Corleone’s famous phrase, this isn’t business, this is personal. And in the personal arena, friends don’t charge their friends fees. Unless your pal is a professional financial adviser – that is, someone who earns his living finding and vetting investments – what he deserves for a favor like this is your sincere thanks and a nice bottle of wine. If the deal turns into a jackpot, then a more substantial gift – some nice green cash, perhaps – is in order. And if it goes belly up? Well, don’t say we didn’t warn you.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

Argue all you want about the job-creating powers of the stimulus bill over the long haul, but take note that it contains a major benefit for many laid-off workers right now.

Inside the American Recovery and Reinvestment Act of 2009, signed into law Tuesday, is a temporary 65% subsidy toward group health insurance premiums for laid-off employees and their families.

Although this does little to mend America’s health-insurance safety net, it’s still a good deal. Under the longstanding law known as COBRA, if a firm has at least 20 employees and offers group health insurance, laid-off workers and their families can stay on the group plan for up to 18 months after they leave. They catch is, the ex-worker has to cough up the full monthly premium—not just the portion he or she paid while employed, but the share the employer was paying, too.

And that’s a lot of money. According to the Families USA Foundation, the average monthly COBRA premium for individual coverage is $388, or about 30% of monthly unemployment benefits. The monthly COBRA premium for family coverage is $1,069, or about 84% of benefits. Reduce that premium by 65%, thanks to the stimulus bill, and you’re saving $695 a month.

Some limitations of the subsidy, which comes in the form of a lower premium: It lasts for only nine months. It applies only to people who are laid off between Sept. 1 of last year and Dec. 31 of this year, and who make less than $125,000 individually (or $250,000 for families). It doesn’t apply if your employer has gone out of business. If you’ve already started paying for COBRA, you won’t get any credit or refund for what you’ve already paid. On the bright side, if you were laid off in the designated time period but missed your 62-day window for taking COBRA, you’re allowed to be eligible again.

One last caveat. Even with the 65% discount, it may be possible, if you’re young and healthy, to get a better deal buying health insurance on the individual market. To research that possibility, talk to a health underwriter (find one through nahu.org) or check out the site ehealthinsurance.com.

Among the casualties in the Washington deal-making to get the economic stimulus package passed was substantive assistance for all families with college-bound students. An early proposal to boost the loan limit for unsubsidized federal Stafford loans by $2,000 per year—a loan available to all comers regardless of family income- failed to make the final cut. (The just-signed legislation does indeed provide more college aid for low-and moderate income families through increases in the Pell grant program and a new $2,500 college-cost tax credit.)

But Congress did throw a small bone the way of college-saving parents: in 2009 and 2010 the purchase of computers, computer equipment and even Internet service used by your college-age kid can be paid for out of your 529 college savings account. Yep, you get to use tax-free dollars to cover computer costs. And it’s not just your kid’s computer costs; the legislation says tax-free 529 funds can be used to make computer purchases for the “beneficiary’s family” as long as the beneficiary-your college student-uses the equipment too. (A simple workaround: have your kid work on her psych 101 paper on the new family computer the next time she swings by for a visit.) Your child must be enrolled in college in 2009 or 2010 for the tech purchases to be covered.

Now, Congress did draw the line at “Rock Band:” computer games used for pure gaming purposes aren’t included as a qualified expense. But the legislation did make an exception for software that has an educational purpose, so theoretically you might be able to make the case that Rock Band qualifies for music majors, or Madden NFL ’09 for phys-ed majors. Test the IRS’s patience at your own peril.

Now, of course, the primary use of your 529 is to pay for college tuition. But if you find yourself in the surprising situation of having some extra money tucked away for school-perhaps your kid snagged more aid than you anticipated-you can now fire up a new family computer paid for with tax-free savings from your 529 plan.

– Carla Fried