Financial Beat

By Yvonne Chilik Wollenberg

Online Auctions: See the goods before you pay

Plan to buy anything at an online auction? You're better off using your credit card than your checkbook, according to the National Consumers League. That's because the card lets you block payment and dispute charges if there's a problem with your purchase.

More than 40 percent of those who have bought merchandise at an online auction have had a complaint of some sort, and only 62 percent of problems were resolved with the sellers themselves. Buyers have most commonly griped that delivery was unreasonably delayed (20 percent); others have received wrong or damaged merchandise (11 and 10 percent, respectively) or nothing at all (10 percent). When the problem involved actual fraud, the average loss was $326.

If you prefer not to use your credit card, consider an online escrow service. For a small fee, it will hold your payment and send it to the seller after you receive and inspect your purchases.

Credit Ratings: What does "good credit" mean? Soon you'll know exactly

For the first time, two major credit bureaus are gearing up to let consumers know their actual credit scores, removing the secrecy that has long cloaked the ratings. Trans Union and Equifax will begin reporting credit scores early this year to consumers who order a credit report. Credit scores are three-digit numbers used by most lenders to estimate how likely you are to repay a loan in a timely way. Nothing else so affects your ability to borrow.

About 70 percent of those surveyed recently by the Direct Deposit and Direct Payment Coalition said they overlooked at least one bill in the past year, including credit card and car-loan payments. But only half of them realized that missing due dates would hurt their credit ratings.

Your payment history, which shows how often you pay bills on time, counts for 35 percent of your credit score—more than any other single factor used to determine your rating.

Taxes: A few new rules to lighten the levy

If Uncle Sam's bill for 2000 makes you cringe, a few tax law changes for 2001 might ease things a bit around this time next year. The Internal Revenue Service has fiddled with a range of deductions and rules.

• Recent grads who pay interest on a student loan may be able to deduct as much as $2,500, up from $2,000. As previously, they can take the deduction for up to 60 months after beginning to repay the loan—meaning that someone who's been making payments for 15 months has 45 more months to take the deduction.

• The standard mileage rate for business use of a car, van, pickup, or panel truck has increased 2 cents, to 34.5 cents. The luxury tax on passenger vehicles drops to 4 percent of the sales price that exceeds $38,000. It was 5 percent.

• You no longer must pay Social Security and Medicare taxes for household help if their wages are less than $1,300 per year. Last year, the threshold was $1,200.

• For people in the 15 percent tax bracket (such as your children), capital gains rates have fallen from 10 percent to 8 on profits from the sale of investments held for more than five years. For those in higher tax brackets, the capital gains tax for investments held that long will drop from 20 percent to 18, but not until 2006.

Autos: After you buy that luxury car, keep your wallet open

Not only is it expensive to buy a luxury car—it takes a small fortune to own one. A Saturn sedan or Honda Accord will cost about half as much as a Cadillac DeVille or Lincoln Town Car to own and operate, and less than one-third as much as a Mercedes-Benz S500, according to a study by Runzheimer International, a management consulting firm in Rochester, WI.

The 2001 model of the Saturn SL2 will cost about $7,600 a year in ownership and operating costs, while a Honda Accord DX will cost $7,900. But count on spending $15,900 a year for a Cadillac DeVille, $15,600 for a Lincoln Town Car Executive, and $25,400 for a Mercedes-Benz S500.

Operating costs include fuel, oil, tires, and maintenance. Ownership expenses include insurance, depreciation, financing, taxes, and license and registration fees.

Mutual Funds: Investing with your conscience doesn't preclude big returns

Of 48 "socially responsible" mutual funds with at least a three-year performance record as of last Jan. 1, seven (15 percent) earned five stars and 12 earned four stars from Morningstar, which rates the mutual fund industry. Only 10 percent of all mutual funds get the five-star rating. Nearly two-thirds of the 48 received high ratings from either Morningstar or Lipper, according to Washington-based Social Investment Forum.

When Morningstar looked at a broader range of 68 socially screened funds, it found that 13 percent had five-star ratings in 2000. That's down from 21 percent in 1999, because many screened funds invested heavily in technology stocks, which fell dramatically last year. But other screened funds—such as the New Alternatives Fund, which invests in energy sources—had a highly profitable year. New Alternatives boasted a 51.8 percent return in 2000.

Socially responsible mutual funds screen out industries that investors may wish to avoid. Most portfolios stay away from tobacco stocks, for example, while some screen out companies that are engaged in questionable environmental, labor, or human rights practices or are involved with gambling, alcohol, or weapons. "Socially responsible investing can hold its own in any market environment, including the turbulence of 2000," says Forum Director Steve Schueth. "Investors wishing to put their money to work in a socially and environmentally responsible way need not fear having to sacrifice returns."

Morningstar's five-star-rated socially screened mutual funds

The author is a freelance writer in Teaneck, NJ.

 

Yvonne Wollenberg. Financial Beat. Medical Economics 2001;6:17.