FiLife

(This article also ran in Slate today, just so you know.)

It’s not as if the Obamas are some modern-day version of the Clampetts, but compared with the competition, they’re at best nouveau riche. As recently as 2004, the Obamas’ adjusted gross income was $207,647, according to their federal tax returns. That’s much higher than the national median household income of $48,201, but for a family of four living in high-cost Chicago, $200K isn’t exactly rolling in it.

Which makes all the hubbub about Barack Obama’s elitism seem pretty hollow. “The irony is,” Obama said last week, “I think it is fair to say that both Michelle and I grew up in much less privileged circumstances than either of my two potential opponents.” Indeed, if Obama is the nominee and wins in November, he would have one of the most modest backgrounds of any president in recent memory; he has noted, for example, that his mother “had to go on food stamps at one point.”

Both Bushes came from family wealth, and Bill Clinton married Hillary Rodham, who would ultimately rake in more than $200K annually (in 1992 in Arkansas) while she was a partner at the Rose Law Firm. Ronald Reagan made money in movies before becoming president; we’d probably have to go back to submariner/peanut farmer Jimmy Carter or career soldier/college president Dwight Eisenhower to find another elected president whose financial picture was as comparatively humble.

But the increase in the Obamas’ wealth has been swift and strong. Their glory days started in 2005, when the couple earned $1.7 million. In 2006, they earned $983,000. Last year, they pulled down an impressive $4.1 million. And no, Tony Rezko had nothing to do with this: Obama’s newfound wealth comes from the success of his two books: Dreams From My Father and The Audacity of Hope have sold more than 2.25 million copies since publication, according to Bookscan. Obama has not donated the proceeds from his books to charity, as John McCain has, but then Obama did not marry an heiress with $40 million in assets.

How do the Obamas invest their money? Very, very safely—like a couple who wants no risk of ever being middle-class again. There are no hedge funds, trusts, or other fancy alternative investments to speak of—just, for the most part, a collection of run-of-the-mill mutual funds. Unlike the average American, however, Sen. Obama had the wherewithal to save the maximum allowable amount ($45,000) in his retirement plan last year. The Obamas also had two sizable joint checking accounts at JPMorgan Chase ($100,001 to $250,000) and Northern Trust ($50,001 to $100,000) at year-end 2006, according to his Senate financial disclosure report (PDF). Perhaps they wanted to have enough cash readily available while they’re on the campaign trail?

For a couple in their mid-40s, the Obamas’ investment holdings are arguably too conservative. One of the single largest chunks of their money (between $150,000 and $350,000 as of year-end 2006) was invested in the Vanguard Wellington Fund, which has about 65 percent in stocks, 33 percent in bonds, and 2 percent in cash. Obama reportedly sold this fund after learning it was invested in Schlumberger Ltd., a French oil-field-services company that does business in Sudan. He put that $180,000 in proceeds into the Vanguard FTSE Social Index Fund, a socially responsible fund that invests in large- and midcap stocks. The Obamas had another $100,000 to $250,000 in Vanguard’s Wellesley Fund, which allocates 60 percent of its money in high-quality bonds. Considering the Obamas have more than 20 years to go before retirement, many financial advisers would tell them to be more aggressive and increase their stock exposure to 80 percent of their portfolio.

The rest of their money—as much as $75,000—is invested across five other mutual funds. This appears to be part of Michelle Obama’s 403(b) retirement plan from her tenure as an administrator at the University of Chicago Hospitals, where she earned around $275,000 over the past two years. Michelle Obama also has three batches of unexercised options to purchase shares of Tree House Foods—a Westchester, Ill.-based food supplier that counts Wal-Mart as a big customer—on whose board she served for two years (a paid position that netted her roughly $50,000 a year). She resigned last May after her husband criticized some of Wal-Mart’s policies. The options’ value is tenuous; currently, shares of Tree House are trading below the options’ strike price of $29.65. Sen. Obama also listed his State of Illinois General Assembly Pension Plan, which is valued somewhere between $50,001 and $100,000.

In 2005 the Obamas did make some seemingly speculative—and ultimately controversial—stock bets (PDF) that made headlines last year. They bought shares of AVI Biopharma and SkyTerra Communications (for a reported total up to $100,000) in February of 2005, before selling later that fall. The sales resulted in a net loss of $13,000. The purchases caused quite a hubbub after the media learned that the two companies were backed by some of Obama’s top donors. Obama has said his UBS broker bought the shares without his knowledge in a quasi-blind trust.

The Obamas have significantly increased their charitable contributions since declaring his candidacy. Last year, they gave $240,370, or about 5 percent of their income, to charity, with their largest contributions going to the United Negro College Fund ($50,000); CARE, the global poverty charity ($35,000); and Trinity United Church of Christ ($26,270), home of the Obamas’ infamous former pastor the Rev. Jeremiah Wright Jr. Contrast that amount with the couple’s charitable giving in 2004, when only 1.2 percent of their income went to worthy causes.

Compared with John McCain and his $270,000 in expenditures on household help, the Obamas lead a much more middle-class lifestyle. Between 2000 and 2007, they spent anywhere between $6,000 and $24,000 annually on household expenses, which appears to include child care for their two daughters, Malia, 9, and Natasha, 6, according to their tax returns. That said, their house is pretty plush: The Obamas purchased their $1.65 million Chicago home three years ago and took out a mortgage of $1.32 million through Northern Trust.

It’s unclear whether the Obamas have invested in a 529 college-savings plan for the girls. (Contributions to their home state’s 529 would show up on their Illinois state return, which wasn’t made public) If they haven’t, they probably should: The Illinois Bright Start College Savings Program recently made it onto Morningstar’s list of best college-savings plans. By investing in Illinois’ plan, those funds would grow tax-deferred, and they’d receive a state income-tax deduction.Obama is familiar with the costs of higher education—he paid off his loans only recently (reportedly after his book money came in). The first bill he introduced in the U.S. Senate would have increased the Pell Grant maximum (that’s college money you don’t have to pay back). If elected, he said he would eliminate the Federal Family Education Loan program, in which private lenders provide loans that are guaranteed by the government to borrowers. He said this program is more costly than the federal government’s direct-loan program, in which students borrow from the government through their schools, eliminating private lending middlemen. He would direct the savings toward student aid. You can argue about whether that’s good policy, but it’s a treat to have a presidential candidate discussing student aid with recent, firsthand knowledge of the subject.

– Sam Grobart & Tara Siegel Bernard

For those who just couldn’t get enough of taxes and are anxiously killing time before receiving stimulus payments, the U.S. Bureau of Economic Analysis satiates the need more government info about money (or lack thereof). Today the BEA released Personal Income Statistics for 2006. Data nerds rejoice!

Some of this stuff can be a total yawnfest, but here are some of the most interesting bits. Or, dive into the full findings here.

-That thumbnail image might look like Microsoft Excel barfed on America, but it actually indicates the percent change in personal income from 2005-2006. Income is generally lower in the middle of the country (get it? they used a corn color!) and higher on the coasts, which are aptly blue-hued. See a closer image in the PDF file.

- Personal income declined in 2006 in 227 counties, according to the BEA. In all but 5 of these counties farming can account for the entire decline. The largest percentage losses in personal income were in counties in the Dakotas and Texas.

-The earnings gap is still massive. Per capita personal income (personal income divided by population) ranged from $110,292 in New York County, New York to $9,140 in Loup County, Nebraska.

- One of the handiest features about this set of BEA stats is how localized the results are. Search by county here. Data is available for 3,111 counties from 1969 to 2006.

-The percent change from 2005 to 2006 in county personal income ranged from 648 percent in St. Bernard Parish, Louisiana to –43 percent in Slope County, North Dakota, according to the BEA. For the nation, personal income grew 6.7 percent.

So although the data was just released today, it reflects 2006 . Things have lately taken a turn for the recession, but the data does provide some insight into the broader contours of wealth distribution in America. Not to mention a glance into a simpler time - when Gnarles Barkley united people with his “Crazy” jams, Britney and K-fed were still together and people thought Pluto was a planet.

-Mary Pilon

A hybrid car will most certainly cut your gas bill — and if you bought one last year, it could also shave down your tax bill.

New hybrid owners shouldn’t forget about the so-called alternative motor vehicle credit when filing your tax returns (you’ve only got a week left!). If you bought a new hybrid in ‘07, you may qualify for a tax credit worth as much as $3,000, according to the IRS, depending on what make and model of hybrid you purchased – and when you bought it.

Tax credits shouldn’t be confused with tax deductions. Credits are more valuable because they cut your actual tax bill, dollar for dollar, while deductions reduce your taxable income.

For the list of credit-eligible hybrids in 2007, click here. In order to qualify, you need to be the original purchaser of a new hybrid; used cars don’t apply. And if you’re leasing, you’re also out of luck. The credit is only available to the leasing company, the IRS says.

These credits won’t last forever. Once a new manufacturer sells 60,000 hybrids, the government begins phasing out the tax break. Take the Toyota Prius. If you purchased one between April and September of last year, you’re eligible for a $787.50 credit (down from $3,150 for 2006 buyers), while it disappears completely for people that bought after Oct. 1. The full credit for qualifying Honda hybrids is available for all 2007 purchases, but it’s being reduced this year.

If you’re in the market for a green set of wheels, check out this chart to see what’s tax-credit worthy in ‘08.

–Tara Siegel Bernard

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There’s a brief-but-interesting article in today’s Wall Street Journal that points out how auctioneer Christie’s is trying to attract younger bidders by revamping its website. New features include “What’s your passion?” and “What are you willing to spend?” sorting tabs and a new, more comprehensive search (powered by Google). And just because it’s Christie’s doesn’t mean everything’s priced at Picasso-money. For the low price of around $2,500 (you didn’t think the crustiest of upper-crust auction houses was going to dip into three figures, did you?) you can be the proud owner of a lovely Spinosaurus tooth. Going once, going twice…

– Sam Grobart

Over the past several days, we’ve witnessed the near collapse and quick rescue of Bear Stearns, one the nation’s oldest financial institutions. J.P. Morgan agreed to buy Bear for a per-share price that won’t buy you a cup of coffee at Starbucks. Meanwhile, the taxpayer Fed is kicking in $30 billion to help the deal along.

Oh, and did you hear last week’s news that we’ve already slid into a recession?

Things aren’t looking good. As such, the Fed is expected to cut rates again tomorrow. But is that the best way to handle what’s going on? Did the Fed go beyond its call of duty with the Bear bailout? Paul LaMonica of CNNMoney, along with some of his readers, raise those interesting questions in an article posted earlier today. You can read it here.

Have your own thoughts about the way the Fed has handled the credit crisis thus far? Post ‘em below.

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Okay, so here’s the thing: I’m leaving.

As in you won’t see my meaningless brilliant ramblings on here anymore. I know, it’s tragic. No more blog posts that deviously try to pass off topics like web-based shows, plastic surgery and sex toys as being relevant to personal finance. No more grumbling about financial aid, or bullying student lenders, or ridiculing inane financial products and bank advertisements. But don’t worry, someone will be right along to pick up where I left off.

Anyway, I thought I’d go out by sharing some of my genius accumulated financial wisdom with you. These aren’t exactly the kinds of things that will help you open a bank account or pay off loans, but I swear, they can be just as practical. I can’t divulge all my devices, but here are a few as a parting gift:

• If you’re ever so strapped for cash that you’re on a Ramen diet ($.20 a meal!) and are a little concerned about the nutrition value (all that sodium!), drop an egg into the broth. It will add some protein to an otherwise not-so-healthy dinner and give the noodles some real flavor—which means you can use just half of that salty flavor packet.
• Before buying anything (gadgets, tickets, services) see if you can get it for free or at least at a discount through your friends, alma mater, employer, or due to your age or location.
• When shopping for clothes, food, or anything really, look for something that is scratched, dented, missing a button, or close to an expiration date and demand a discount from the manager of the store. It’s typically at least 15% off.
• When dealing with any customer service rep on the phone, just ask to speak with their manager/supervisor right away. It will save you time and energy. Generally people that answer phones and man store counters never have the authority to do anything except end conversations with “I’m sorry, that’s just our policy.”
• If something goes wrong at a restaurant, store, or business you’re using, write a letter of complaint. I know, it’s what your grandma used to do, but really, it works! You can get comped meals, gift certificates and store credit.

Okay, that’s all I got. So many cliches to use here, so I’ll just go with a simple bye.

–Irina Aleksander

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We hate to say we told you so, but as we predicted, an increasing number of private colleges have continued to cut tuition deals for middle and lower-income families. Following the lead of big boys like Harvard and Yale, now Dartmouth, Stanford and Brown have introduced new financial-aid plans of their own.

Can this be guilt? A realization that most of its students are graduating with debt in the sextuple (it’s a word, we swear!) digits? Altruism in its truest form?

Unfortunately, it’s probably none of the above. Private colleges are ultimately businesses that a) adhere to the same formula of supply and demand as your local 7-Eleven and need to compete for your dollar and b) have gotten their arms twisted by the Senate to dip into their endowments.

Here’s a roundup of the latest selfless acts of kindness scheduled to kick in this fall:

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It figures. Just as I’m packing for Rome, the dollar hits a new all-time low against the euro.

I’ve put off traveling overseas for several years in hopes that the dollar would eventually firm up. But when you start reading stories about how some New York shopkeepers are beginning to favor the European currency, you lose hope. And you just go anyway.

Since we’re already starting at a disadvantage, I want to avoid as many of the fees banks and credit-card companies tack on every time you make a transaction in a foreign currency. So I did some research to find out the best credit-cards to use, as well as what’s the most economic way to convert my weakling dollars into euros (I need a small pile of euros to qualify for a 10% discount on my hotel). (more…)

Twenty-somethings are a confused bunch. That’s the premise of the web-based series (and social network, although that’s sort of been its secondary identity) Quarterlife. The show, created by Marshall Herscovitz and Edward Zwick of My So-Called Life fame, originally premiered on MySpace and has recently been picked up by NBC, premiering tonight at 10pm Eastern.

There are many things about the show worth talking about: the sly Gen-Y product placement, the TV series’ not-so-traditional launch and its crossover into the mainstream, and perhaps the philosophical significance of conundrums like “Why do we blog?” and “responsibilities are the death of dreams” uttered by the show’s witty characters. But, us being a personal-finance site and all, our task is simply to investigate how Quarterlife deals with twenty-somethings’ financial dilemmas.

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Were you a boy in the 1980s? I was. I was a lot. And because I was, I became good friends with a little catalog that I liked to call The Sharper Image.

The Sharper Image was the future in your hands. Scratch that–it was better: It was like having Japan in the palm of your hands. Senseless gadgets that had no reason to exist other than because founder Richard Thalheimer (aka The Poor Man’s Steve Jobs) deemed it so? Robots and crazy voice-activated whoizts and night vision that didn’t require DoD security clearance to buy? It was paradise on Earth, I tell you.

Sadly, my boyhood enthusiasm for TSI didn’t last. And apparently, that’s also the case for millions of other people, as the company filed for bankruptcy protection last week. (more…)