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Car Dependency is An Unequal Burden – Streetsblog USA

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This article originally appeared on Planetizen and is reprinted here with permission. For more information and resources, visit Planteizen. 

Entertainer Will Rogers once noted that, “The United States is the only country ever to go to the poorhouse in an automobile.” This has become tragically true for many low- and moderate-income families.

For example, thousands of automobiles regularly line up to receive food bank packages, as illustrated in the photo above.

These are mostly nice SUVs, light trucks and vans, the types of vehicles owned by responsible families living in automobile-dependent communities. Automobile food bank lines are, to a large degree, a self-fulfilling prophesy: Because residents must drive everywhere, they have high transportation costs, leaving inadequate money for other essentials like food, shelter and healthcare, which forces them to depend on charity. Many of these families would not need food bank help if they could cut their vehicle expenses in half, saving $250-500 per month, but that is often infeasible because they lack affordable mobility options. This is one example of the inefficiencies and unfairness of an automobile-dependent transportation system.

Todd Litman
Todd Litman

For most of the last century, transportation planning has favored automobile transportation over slower but more affordable transportation options. The result is a community where it is easy to get around by car, but often difficult and sometimes dangerous to reach essential services and activities by other modes. This type of transportation system may satisfy the needs of affluent motorists but fails to serve people who cannot, should not, or prefer not to drive, and imposes unfair financial burdens on many lower-income households.

Consider the economics. Although lower-income motorists use various strategies to minimize their vehicle expenses, such as purchasing used vehicles, driving with minimal insurance, and performing their own maintenance when possible, it is difficult to spend less than about $5,000 per vehicle-year to legally operate an automobile. Some motorists spend less some years, but automobiles are prone to unpredictable and sometimes large expenses. For every low-income motorist that spends less than $3,000 to drive an efficient and reliable old car, two others spend thousands of dollars on vehicle payments and insurance premiums, plus occasional unplanned expenses due to mechanical failures, crashes, traffic citations, and fuel price spikes.

Most vehicle costs are fixed; motorists pay the same regardless of how much they drive (see graph below), so they have few opportunities to save money. For example, a motorist must continue making car and insurance payments, performing scheduled maintenance, and sometimes pay for residential parking, even if they lose their job, so their income and monthly mileage declines significantly. They are stuck.

Most vehicle expenses are fixed. Motorists must pay the same car payments, insurance, scheduled maintenance and residential parking costs, whether they drive 250 or 1,000 miles per month.

These expenses are more than many households can afford. Experts define affordability as households being able to spend less than 45% of their total budgets on housing and transportation combined. According to the Bureau of Labor Statistic’s Consumer Expenditure Survey, households in the first and second income quintiles (fifth of all households) spend more than 35% of their budgets on housing, so affordability requires that they spend less than 10% of their budgets on transportation.

The table below indicates the portion of total household budgets required to own one or two vehicles, by income quintile, assuming that each vehicle costs $5,000 per year. This indicates that for the first and second income quintiles owning one car is unaffordable, and owning two vehicles is unaffordable for most households.

Littman table 1
This table shows the portion of household budgets typically required to own one or two vehicles. Bold indicates those that exceed the 10% affordability targets.

Described differently, typical lower-income households can afford housing expenses (rent or mortgage) or vehicle expenses, but not both, and owning two vehicles is financially stressful for most households. Of course, many households own more vehicles and spend more on transportation than is considered affordable. This leaves them vulnerable to financial shocks, such as a vehicle failure, traffic collision, or reduced income, which explains why so many families must drive to food banks or require other types of financial assistance.

For vulnerable households, a small vehicle problem can turn into a major financial and legal crisis. For example, a high-interest car loan for an unreliable vehicle, a vehicle crash, being caught driving unlicensed or uninsured, or an unpaid traffic citation can quickly expand to a morass of debt, injury, unemployment, legal strife, and sometimes jail. Default rates on high-risk, high-interest auto loans are increasing, leaving many low-income households with no vehicles, no money, and no credit.

Of course, I’m not blaming those households or ignoring the economic opportunities that owning a vehicle provides. There are certainly examples of disadvantaged households that can justify spending more than recommended on vehicles, for example, to access a better paying job or cheap housing. However, for each of these, you will find more examples of households that are severely harmed by our automobile-dependent transportation system, for example, non-drivers who suffer from inadequate mobility options, and low-income household that go into debt to purchase a vehicle that promptly fails or crashes, leaving them with neither money or mobility, plus injuries and bad credit ratings. The fact that some disadvantaged households succeed in an automobile-dependent community does not mean that it serves everybody.

Maslow’s hierarchy of needs would surely rank food, shelter and healthcare above the added convenience and status of driving, but our planning practices give individuals little choice. Most jurisdictions invest far more in automobile infrastructure than in other modes. It is not generally possible to say, “Please don’t invest any more on roads and parking facilities for me. Instead, spend my transportation dollars on sidewalks, bike paths, bus lanes and transit services so I have more affordable transportation options.”
There are many good reasons to favor multimodal transportation and affordable infill development. Residents of compact, walkable neighborhoods tend to own fewer vehiclesdrive less, and rely more on active modes, and so:

Some people mistakenly argue that these problems justify even more subsidies for driving, to allow low-income households to access economic opportunities, but that is an inefficient solution. For example, researchers Michael Smart and Nicholas Klein’s study, “A Longitudinal Analysis of Cars, Transit, and Employment Outcomes” found that low-income households that obtained a car were able to work more hours and earn approximately $2,300 more per year, which sounds great, but they spent an additional $4,100 annually on their vehicles, so they ended up with less time and less money overall. For many lower-income people, automobiles are an economic trap: they force people to work harder so they can earn more money so they can pay vehicle expenses to commute to their job, making them worse off overall.

It needn’t be that way. We can reverse our planning priorities to favor affordable mode and multimodal neighborhood development, in order to create communities where it is easy to live without a car. An efficient, equitable and resilient transportation system must ensure that anybody, particularly those with mobility impairments or low incomes, can find suitable housing in a walkable, transit-oriented neighborhood where it is easy to access basic services and activities—education, jobs, shops and recreation—with affordable modes. This is sometimes called Transit Oriented Development or New Urbanism, and most recently a 15-minute neighborhood, but regardless of what it is called, it offers affordable and diverse transportation options, providing something for everybody, including people with disabilities, children, and anybody who cannot, should not, or prefers not to drive.

I can report from personal experience that by residing in a walkable urban neighborhood it is easy to live car-free and minimize our transportation expenditures: to access local services and activities we spend about a thousand dollars annually on shoes, bikes, bus, plus occasional taxi fares and car sharing.

This is a timely issue. Affordability is an important but often overlooked transportation planning goal. Conventional planning sometimes considers vehicle operating costs and transit fares, but seldom considers total transportation costs and therefore the potential savings provided by more multimodal planning that favors affordable transportation options.

A basic principle of good planning is to “hope for the best, but prepare for the worst.” In most North American communities our transportation systems fail to reflect this principle; they favor expensive modes and people with abilities over slower but affordable modes, and therefore ignores the needs of people who are physically, economically, or socially disadvantaged. The box below identifies specific policies and planning practices that contribute to automobile dependency, and therefore higher transportation costs. Planners have a responsibility to identify the harms and inequities that result from these practices, and to identify reforms.

Littman graphic 2

This is ultimately about opportunity and freedom. Conventional policies assume that everybody, or at least everybody who matters, wants to live a high-consumption, high-cost, automobile-dependent lifestyle. It ignores the demands of people who need more affordable housing and mobility options, due to low incomes or because they want to work less and devote more time to art, education or family. All we are saying is, give affordability a chance!

Todd Litman is founder and executive director of the Victoria Transport Policy Institute, an independent research organization dedicated to developing innovative solutions to transport problems. Follow him on Twitter @litmanvtpi



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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom | Fintech Zoom

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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom



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Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

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The government’s incentive to step in and bail out depositors when banks fail is clear from past experience.

By Anusha Chari & Amiyatosh Purnanandam

The failure of the Punjab and Maharashtra Co-operative Bank (PMC) in September 2019 shone a light on the limitations of India’s deposit insurance system. With over Rs 11,000 crore in deposits, PMC bank was one of the largest co-op banks. That the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance covered depositors, provided little solace when the realisation hit that the insurance amounted to a mere Rs 1 lakh per deposit.

The predicament of PMC depositors is, unfortunately, not an anomaly. Several bank failures over the years have severely strained RBI and central government resources. While co-operative banks account for a predominant share of failures, other prime examples include the Global Trust Bank and Yes Bank failures. These failures entail a direct cost to the taxpayer—the DICGC payment or a government bailout. More importantly, bank failures impose long-term indirect costs. They erode depositor confidence and threaten financial stability, presenting an urgent need for deposit insurance reform in the country.

A sound deposit insurance system requires balancing two opposing forces: maintaining depositor confidence while minimising deposit insurance’s direct and indirect costs. At one extreme, the regulator can insure all the deposits, which will undoubtedly strengthen depositor confidence. But such a system would be very expensive.

A bank with full deposit insurance has minimal incentive to be prudent while making loans. Taxpayers bear the losses in the eventuality that risky loans go bad. Depositors also have little incentive to be careful. They can simply make deposits in the banks offering high interest rates regardless of the risks these banks take on the lending side.

Boosting depositor confidence and reducing direct and indirect costs require careful structuring of both the quantity and pricing of deposit insurance. Some relatively quick and straightforward fixes could help alleviate the public’s mistrust while improving the deposit insurance framework’s efficiency.

India has made some progress on this front over the last couple of years. First, the insurance limit increased to `5 lakh in 2020. Second, the 2021 Union Budget amended the DICGC Act of 1961, allowing the immediate withdrawal of insured deposits without waiting for complete resolution. These are very welcome moves. Several additional steps could bring India’s deposit insurance system in line with best practices around the world. Even with the increased coverage limit, India remains an outlier, as the accompanying graphic shows.

The government’s incentive to step in and bail out depositors when banks fail is clear from past experience. However, these ex-post bailouts are costly. The bailout process also tends to be long, complicated, and uncertain, further eroding depositor confidence in the banking system. A better alternative would be to increase the deposit insurance limit substantially and, at the same time, charge the insured banks a risk-based premium for this insurance. Under the current flat-fee based system, the SBI pays144 the same premium to the DICGC—12 paise per 100 rupees of insured deposits—as does any other bank!

A risk-based approach will achieve two objectives. First, it will ensure that the deposit insurance fund of the DICGC has sufficient funds to make quick and timely repayments to depositors. Second, the risk-based premia will curb excessive risk-taking by banks, given that they will be required to pay a higher cost for taking on risk.

India is not alone in trying to address the issue of improving the efficiency of deposit insurance. The Federal Deposit Insurance Corporation (FDIC) recognizes that the regulatory framework governing deposit insurance is far from perfect and the United States is moving towards risk-based premia. The concept is similar to pricing car insurance premia according to the risk profile of the driver. The FDIC computes deposit insurance premia based on factors such as the bank’s capital position, asset quality, earnings, liquidity positions, and the types of deposits.

In India, too, banks can be placed into buckets or tiers along these different dimensions. The deposit premium can depend on these factors. It is easy to see that a bank with a worsening capital position and a high NPA ratio should pay a higher deposit insurance premium than a well-capitalized bank with a healthy lending portfolio. The idea is not dissimilar to a risky driver paying more for car insurance than a safe driver.

Risk-sensitive pricing can go hand-in-hand with the increase in the insured deposit coverage limits bringing India in line with its emerging market peers. In a credit-hungry country like India, these moves would build depositor confidence, possibly increasing the volume of deposits and achieving the happy result of the banking system channeling more savings to productive use.

Chari is professor of economics and finance, and director of the Modern Indian Studies Initiative, University of North Carolina at Chapel Hill and Purnanandam is the Michael Stark Professor of Finance at the Ross School of Business, University of Michigan

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5 Signs You’re Not Ready to Own a Home, According to a CFP

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The housing market has boomed over the last year, despite a global pandemic and millions of Americans struggling to make ends meet. 

Many people are spending less on entertainment, clothing, travel, and other discretionary purchases during COVID. Federal student loan borrowers have seen temporary relief from their loan payments. These expenses will most likely rise again after the pandemic, and many people who committed to a new home with a large mortgage will struggle to keep up. 

I often speak with clients and prospective clients who want to buy a home before they have a strong financial foundation. Buying a home is not only one of the largest purchases you’ll make in your lifetime, but it’s also a huge commitment that’s extremely hard to undo if you have buyer’s remorse

It’s important to make a thoughtful, informed decision when it comes to a home purchase. Before you take the plunge into homeownership, check for these signs that you’re not quite ready to buy. 

1. You have credit card debt

Credit card debt can be a drain on your monthly budget, and when combined with student loans and a car loan, it can lead to high levels of stress. 

Generally, more debt means higher fixed expenses and little opportunity to save for long-term financial goals. Your financial situation will only get worse with the addition of a mortgage. I always recommend that clients be free of credit card or other high-interest debt before they consider buying a home. 

To rid yourself of credit card debt, take some time to get a good handle on your cash flow. Take an inventory of your spending over the last six to 12 months and see where you can cut back. From there, develop a realistic budget that includes aggressive payments to your credit cards. 

There are several strategies to help you knock out credit card debt fast. Regardless of the method you choose, stick with the plan and track your progress along the way. Once you pay off your credit cards, you can allocate your debt payments to savings, which can help you avoid this situation in the future.  

2. You have bad credit

Bad credit is not only a sign that you may not be ready to take on a mortgage, it can also signal a high risk to

mortgage lenders
. A high-risk status results in higher interest rates and more strict requirements to qualify for a loan. A mortgage is one of the largest loans you’ll take out in your lifetime, and if you get behind on payments, you could lose your home. 

Just as with credit card debt, bad credit could be a result of past financial mistakes. Dedicating the time to repair bad credit and improve your credit score will help you beyond purchasing your dream home. 

Start by pulling a recent credit report from each of the three credit bureaus so you can review it for errors. Dispute any errors, address past-due accounts, and bring your overall debt balances down. It’s helpful to learn what has a negative effect on your credit score so you can avoid these mistakes in the future. 

3. You don’t have an emergency fund (or an inadequate one)

If you’re unable to save for a rainy day, you probably don’t have enough money to buy a house. Owning a home is a big responsibility, and unexpected expenses pop up all the time. In addition, you could lose your job, have a medical emergency, or another unexpected expense unrelated to the home. Maintaining an emergency fund is a good sign that you have discipline and are prepared for the responsibility of homeownership.

Many financial experts recommend saving at least six months of living expenses in an emergency fund. If you have variable income, own a business, or own a house, you should save more. To build an emergency fund, set money aside from each paycheck and automate transfers to make the process easier. Give your emergency fund a boost when you receive lump sums such as bonuses or tax refunds. Start by saving one month of living expenses and build from there. 

4. You don’t have separate savings for your home

I always advise clients to set aside savings for a home in addition to an emergency fund. It’s a bad idea to start homeownership with no savings. Whether you have unexpected expenses related or unrelated to the home, having no emergency fund after a home purchase will lead to unnecessary stress — and possibly more debt. 

When purchasing a home, you’re responsible for a down payment and closing costs. While a 20% down payment is ideal to avoid private mortgage insurance, a down payment of at least 3.5% is typically required. Closing costs can range from 2 to 5% of the home’s value. 

Also, you will have moving costs, costs to spruce up your new place (like new furniture or light cosmetic updates), and any initial maintenance and repairs. Be sure to budget for these items to know how much to save on top of your emergency fund. It doesn’t hurt to boost your emergency fund, too, in preparation for homeownership. 

5. You have a low savings rate

It’s much easier to develop good savings habits before you have a lot of responsibilities. To get on track for financial independence, several studies show that you should save at least 15% of your income. The longer you wait, the more you’ll need to save. 

If your savings rate is low before you purchase a home, it will most likely worsen after becoming a homeowner. Even if your mortgage is similar to your rent, ongoing maintenance and repairs, higher utilities, and homeowners association fees can wreak havoc on your budget. 

Take a look at your current savings rate and see if you’re on track for financial independence. If you’re saving less than 15 to 20% of your income, work to improve your savings rate before you consider buying a home. A strong savings habit can help you build your home savings fund faster and ensure that a home purchase doesn’t impede your long-term financial goals. Finally, understand how much house you can afford so you can avoid being house poor. 

Buying a home can be rewarding, and when done the right way, it’s a way to build wealth. Before you decide to buy a home, it’s important to understand your numbers and ensure that you’re ready for the commitment. Without preparation, your dream home could be detrimental to your long-term financial goals.

Chloe A. Moore, CFP, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta, Georgia and serving clients nationwide.

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