Finance Xpress

The pandemic has hit America’s biggest city particularly hard. Amidst a deep fiscal hole, rising homicides, and a flight to the suburbs, some people think the city is heading back to the bad old 1970s. We look at the history — and the data — to see why that’s probably not the case.

Listen and subscribe to our podcast at Apple Podcasts, Stitcher, or elsewhere. Below is a transcript of the episode, edited for readability. For more information on the people and ideas in the episode, see the links at the bottom of this post.

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More than 200,000 people have died from Covid-19 in the U.S. And there’s a common sentiment that New York City is on its deathbed too. It was, after all, the American epicenter of the pandemic, with more than 20,000 people dead and nearly a quarter-million positive cases. It also had a shutdown that showed just how reliant the city’s economy is on the very things that are most discouraged during a pandemic: packed Broadway theaters and subway cars; packed restaurants and sidewalks; packed offices and co-working spaces.

Over the summer, New York’s Covid rates fell dramatically; schools recently reopened and even restaurants have been approved to resume indoor dining, at reduced capacity. But infection rates have begun to tick up again — which may lead to a second shutdown. Which would pile on atop all the economic damage that’s already been done. So, could the density that has historically driven a city like New York also drive it toward extinction? Is New York City — and as a New Yorker, I don’t even like to say this aloud, but — is New York City over?

Max ROSE: Over my dead body is New York City over.

But what about the data?

Dan DOCTOROFF: The city is projecting $6, $7 billion deficits out as far as the eye can see.

Jennifer DOLEAC: People are concerned about what appears to be an increase in homicide rates.

Jake VIGDOR: Well, if we have people work from home, that home could be anywhere.

Ed GLAESER: Ha! No, New York City is not over.

Today on Freakonomics Radio: the first of a two-part series about the fate of cities in the age of Covid-19. This one is primarily about New York, and the upsides — and downsides — of cities in general. And next week, we’ll talk about why solving one urban problem would help solve so many others. Which problem is that? I’m glad you asked: housing prices.

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Last month, executives from more than 160 of New York City’s largest employers — banks and law firms, sports leagues and real-estate developers — sent a letter to the mayor, Bill de Blasio. They warned that his poor management of the pandemic was threatening long-term damage. “There is widespread anxiety,” they wrote, “over public safety, cleanliness and other quality-of-life issues that are contributing to deteriorating conditions in commercial districts and neighborhoods across the five boroughs.”

The five boroughs of New York City, just so you know, are the Bronx, Manhattan, Brooklyn, Queens, and Staten Island. Also just so you know, Bill de Blasio is a Democrat who even before the pandemic was almost comically unpopular. We don’t need to get into the details but if you want to read up on him, just do a search for de Blasio and then “arrogant” or “hypocrite” or even “schmuck.” Consider this campaign ad — from a fellow New York Democrat, no less.

Max ROSE: Bill de Blasio is the worst mayor in the history of New York City.

And that is:

ROSE: My name is Max Rose. I’m a congressman.

Stephen DUBNER: You don’t sound very happy about that somehow.

ROSE: My name is Max Rose, and I’m a congressman!

DUBNER: Now, you and I happen to know each other a little bit through a family connection. My son has worked on your campaign and in your office in D.C. Do you solemnly swear to not let that relationship influence this interview?

ROSE: I solemnly swear. 

Rose represents New York’s 11^th District, historically the only Congressional district in the city that votes Republican. It includes all of Staten Island and parts of Southern Brooklyn.

ROSE: One of the highest rates of unionization of any district in America. Cops, firemen, teachers, nurses, first responders, sanitation workers, folks who we just recently started calling essential workers, but quite frankly, they were always essential.

Like every member of the House of Representatives, Rose is up for re-election in November.

ROSE: I don’t give a s**t about politics, my friend. Not right now. Unemployment is skyrocketing, the economy in disarray. People are fearful for their lives, fearful for the future of their families. This is the time to be thinking about how to help people, making government finally work again. People are so disgusted with their government. That’s on the left, the middle, and the right. 

DUBNER: You recently said, “There is no reason that every single teacher in New York City should not be tested at least every other day.” As far as I know, that’s not even close to happening.

ROSE: It’s not happening because a failure of leadership, a failure of imagination. Nobody has confidence in this city right now. There’s no plan. There’s no solidarity. There’s no resources. With a system of pool testing — with a system where New York City is acting almost as if it is a venture capitalist when it comes to figuring out the most innovative ways to beat the pandemic, investing in them early on with public-private partnerships, and then dramatically scaling them — there’s no reason we couldn’t be testing every single teacher every other day . 

We asked Mayor de Blasio for an interview, but he declined. There are at least two reasons why. In political circles, de Blasio is considered particularly unskilled. Last year, he spent a lot of time outside the city running for president even though he had virtually no constituency. He’s also managed to annoy the one person a New York City mayor can’t afford to annoy: the governor of New York, Andrew Cuomo. New York mayors have a history of acting like the most powerful person in one of the most important cities in the world — which, to be honest, is not entirely inaccurate — but a lot of the city’s leverage runs through Albany, the state capitol.

ROSE: What we need and what this mayor has not done is we need someone who’s willing to exist in reality. Guess what? If you want this city to prosper, you need the governor. If you want this city to prosper, you shouldn’t be antagonizing him. You should be working with him.

But as Max Rose sees it, the de Blasio administration was failing New York long before Covid hit.

ROSE: In some ways, the mayor and his administration took up a new form of laissez-faire economics where they said, “Well, we don’t have to invest in the future of this city because people will have to stay here. People will need to stay here. People will always come here and build their businesses. We don’t have to do anything.” Well, that’s, of course, not the case. This is a competitive country and it is a competitive world.

During the pandemic, New York City has been competing with neighbors like New Jersey and Connecticut and the New York suburbs. Also: Florida and Arizona and Nashville and Austin. Those, at least, are a few of the places that some New Yorkers have fled to. But how many? The truth is, no one really knows yet. Pre-pandemic, the city’s population was 8.3 million. The New York Times, analyzing cell-phone data, found that 420,000 people had left the city between March and May — most of them wealthier residents with a second home. But that measurement has an obvious limitation: leaving the city, with your cell phone, doesn’t mean you won’t return. Especially if you own your home, since right now is not the easiest time to sell a New York apartment.

Here’s another, probably better metric: since March, roughly 250,000 New Yorkers have filed with the post office to change their mailing address. That’s about double the number from the same period last year. So that suggests roughly 125,000 higher-than-normal outflows. That goes with a significant decline — also hard to measure — in the number of people moving into New York. Still, in a city of 8.3 million, this doesn’t seem to qualify as a mass exodus. To get a slightly finer-grained look at population outflow, we called up Nancy Wu.

Nancy WU: I’m an economist at StreetEasy, where I look at the trends about real estate and then create analyses to tell stories about the data. 

StreetEasy is a listings service used by landlords and renters, buyers and sellers, and real-estate agents. It manages a pretty impressive database:

WU: I have access to all of the market data on the sales and the rentals listings in the universe of real-estate listings in New York City.

And what has Wu seen since the pandemic?

WU: So, Manhattan rental inventory as of July, there’s been 37,000 listings on the market. That is a 65 percent growth from last July. 

And how about in, say, Queens? And Queens, you should know, has 2.2 million people, whereas Manhattan has only 1.6 million.

WU: In Queens, there’s 6,600 listings on the market, and that’s a 26 percent increase from last July. So, inventory grew everywhere — when looking at the borough level — but it grew way more in Manhattan. 

So, that’s some rental data. What about home sales?

WU: In July, there’s been 37 percent fewer Manhattan homes that went into contracts than in the same month last year. There’s largely been a fast-forwarding of the natural attrition of the city. So, New Yorkers who are planning on moving to the suburbs within one or two years are doing that now instead. So, these New Yorkers are taking advantage of the low mortgage rates to move to the suburbs. 

So, that’s another hint that the outflow may not be as apocalyptic as some people think — at least not yet. That it may be more of a one-time acceleration of a constant trend. Although of course those outflows are usually countered by inflows. Will people keep moving into New York? There are a lot of reasons to suspect not, particularly in the short term: the city is diminished; and it remains relatively expensive, especially housing. Although that too is changing, at least a bit.

WU: In Manhattan, rents fell by 3 percent year-over-year since last July. That’s the biggest decline we’ve seen since the Great Recession, when rents fell by 10 percent. 

But Wu says we may be seeing only the beginning of this trend.

WU: We do expect that Manhattan rents could fall by more than 10 percent because there’s a lot of factors where the pandemic has more impact on rents than the Great Recession did.

That may be especially true for two reasons. The first is that a recovery from a pandemic is likely even more uncertain than recovery from a financial crash. The second is that the pandemic isn’t done doing its damage on the economy. Just last week we saw tens of thousands of new layoffs and furloughs announced by firms like Disney, and United and American Airlines. Even when jobs aren’t based in New York City, there’s a trickle-down effect: on the financial-services and banking industries here, on consulting and accounting firms, on commercial real estate and the hospitality sector.

A recent audit by the New York State comptroller reported that over the next year, between a third and a half of New York City’s restaurants and bars may close permanently. So, you could imagine that pandemic-induced urban flight will accelerate. And maybe not just in New York, but in cities all over the country. Except, apparently, that’s not happening. The national online real-estate firm Zillow, which happens to own StreetEasy, has found that only two U.S. cities have so far seen their nearby suburban housing markets surge disproportionately: New York, the most expensive city in the country, and San Francisco, which is No. 2. Meaning that a lot of other very popular and expensive cities seem to be weathering the pandemic better. Cities like Seattle.

VIGDOR: Seattle is a younger city than either San Francisco or New York, and it’s less dense. 

That’s Jacob Vigdor. He’s an urban economist at the University of Washington, in Seattle. As you likely know, Seattle is home to Amazon and Microsoft and other tech firms. And it’s different from America’s older cities.

VIGDOR: San Francisco is the densest city on the West Coast. New York City is the densest city in the United States. Seattle didn’t really boom until World War II.

When it comes to Covid-19, most American cities find themselves in more of a Seattle position than a New York position. Most American cities aren’t very dense; they’re more car cities than public-transportation cities; a lot of them could pass for New York City suburbs. That said, Vigdor sees Covid-19 affecting cities like Seattle too.

VIGDOR: Imagine the typical workday of an Amazon employee in Seattle. They wake up in the morning in a house that might’ve cost $1 million. And if it had been in Pittsburgh, it would be less than half that much. They eat their breakfast and then they go to work. And if they’re out in the suburbs, getting into South Lake Union, the neighborhood where Amazon is, might take them an hour. And then they work all day and then they go home. And that’s another hour or hour and a half.

So, that’s a lot of commuting.

VIGDOR: People will self-report a lower quality of life if they have to endure long commutes. 

Covid-19 has essentially wiped out commuting, at least for now, at least for the kind of jobs that can be done from home.

VIGDOR: Once you start to move to a model where you’re not based in an office, then the entire need to locate in a place where there are a lot of high-skilled workers nearby sort of evaporates.

And cities with a concentration of highly skilled workers tend to be expensive cities.

VIGDOR: And so, it could lead to a situation where you’ve got more innovation happening in different parts of the country, and you have people being recruited without the necessity of relocating. 

This could be good news for smaller, cheaper cities. Also for suburban and rural areas. But it’s bad news — even more bad news — for a big city like New York, whose density has lately been working it.

DOCTOROFF: The city is projecting $6, $7 billion deficits out as far as the eye can see.

That’s Dan Doctoroff, who was deputy mayor for economic development under New York mayor Michael Bloomberg in the early 2000s. Today Doctoroff is the C.E.O. of Sidewalk Labs, and he’s trying to rally other New York business leaders to prevent a cataclysm.

DOCTOROFF: We don’t yet know how severe it’s going to be until we know how long the pandemic is going to last. But the risk that we’re at is basically shoving the city into a 1970s-style “vicious cycle.” What you don’t want to happen in a city is for the city to actually shrink in terms of the number of residents, the number of jobs, and the number of visitors because when it shrinks, the budget gets compressed. When that happens, quality of life deteriorates and more people leave, perpetuating the cycle. That’s what happened in New York in the 1970s.

Kim PHILLIPS-FEIN: New York loses about 800,000 residents between 1970 and 1980. 

And that is the historian Kim Phillips-Fein, author of the book Fear City, which is about New York’s fiscal crisis.

PHILLIPS-FEIN: The fiscal crisis is usually described as an example of governmental overreach and irresponsibility, the idea being that New York’s local government was engaged in all manner of wasteful, frivolous, unnecessary spending and as a result, was almost forced into defaulting on its debt and having to declare bankruptcy. 

To Phillips-Fein, that is only part of the story.

PHILLIPS-FEIN: New York did have a problem covering its bills in the 1970s. 

Bills that, given the nature of New York, were unusually large.

PHILLIPS-FEIN: The transit system, the library system, the park system, the tuition-free City University, the network of more than 20 public hospitals, as well as an ambitious investment in public-health initiatives. All of this is on a scale unusual for American cities in general.

But that massive expenditure, she argues, wasn’t a primary driver of the crisis.

PHILLIPS-FEIN: I place the primary responsibility on the recession that gripped the entire United States in the early 70s, the long underlying trends of deindustrialization and suburbanization, which were driven in part by federal policies on trade and on the kind of structure that supported the development of suburbia.

This fed the sort of urban flight that a lot of New Yorkers are worried about today.

PHILLIPS-FEIN: Wealthier people were leaving the city to go to the surrounding suburbs. People who were generating their livelihoods in New York, but then paying their property taxes to jurisdictions beyond the city limits.

The city kept spending on all the services that make a city a city — but with declining tax revenues, there arose a huge deficit: $1.5 billion a year — which was a lot of money back in the 1970s.

PHILLIPS-FEIN: And instead of addressing this openly, the mayor of the city and others in the city government begin to quietly borrow more and more.

The mayor at the time was Abraham Beame. Who, before he got into politics, was an accountant. Which presumably meant he understood the value of not spending beyond your means. But by 1975, the city was facing a $3 billion shortfall and was unable to borrow any more from its creditors. Bankruptcy looked likely, if not inevitable. The Republicans running Washington, under President Gerald Ford, weren’t willing to help either. Here’s how the Daily News put it, in perhaps the most famous front-page headline in tabloid history: “Ford to City: Drop Dead.” But the governor of New York, Hugh Carey, had brought in a savior, by the name of Felix Rohatyn.

PHILLIPS-FEIN: Felix Rohatyn was an investment banker who became very involved publicly in the city’s efforts to respond to the crisis. And he headed up, the Municipal Assistance Corporation, otherwise known as Big MAC, which was authorized to sell bonds on behalf of the city that were backed by a special sales tax. And then MAC would release the money to the city as the city showed progress towards a balanced budget. 

Big MAC stabilized the city’s finances enough to avoid bankruptcy. But investors were still reluctant to buy New York City’s debt. This led to the creation of the Emergency Financial Control Board:

PHILLIPS-FEIN: Which was a state entity that was given final veto power over the city’s budget. And this, in a way, removed final say over New York spending from the elected officials in the city and put it in the hands of the state.

This helps explain why, to this day, the mayor of New York City has to make especially nice with Albany.

PHILLIPS-FEIN: People are pretty explicit about this at that time: the idea is to make it harder for New Yorkers to influence what their city spends money on.

New York City finally had a balanced budget by 1980. But the city’s workforce had been reduced by 20 percent. And there were a lot of other problems:

PHILLIPS-FEIN: You know, parks that are dilapidated. The fires in the South Bronx or in Brooklyn. The number of homicides in New York goes up dramatically, from about 1,400 a year in 1970 to a bit over 2,000 by 1980.

And remember, the city had lost 800,000 residents over that decade.

PHILLIPS-FEIN: It is as though the city government is drawing back right when its presence might have been needed the most.

DOCTOROFF: It was a long climb out of a relatively short decline. 

That again is Dan Doctoroff.

DOCTOROFF: Felix Rohatyn and business and labor leaders came together basically to stave New York from bankruptcy. But that didn’t make the city better. It took 25 years to get that 800,000 people back. And that was just the start of the recovery.

DUBNER: Okay, so the fiscal crisis in the 70s was a relatively short decline — even though the underlying problems were evident for a while — followed by a relatively long recovery. The pandemic, meanwhile, was totally unexpected and the economic decline has been faster, more drastic and in the long run maybe even deeper. So, when you look at these two declines, how do you conceptually think of recovering from this one versus that one?

DOCTOROFF: So, that one, took a long time, billions of dollars of investment, painstaking progress, followed by a retrenchment and more progress. This — you know, one could argue we were starting to see evidence of a decline in New York before the pandemic.

DUBNER Population had been drifting downward a little bit the last couple years. 

DOCTOROFF: In the last two years, we lost 50,000 or so people. And so that was a negative sign. We had started to see slight upticks in certain categories of crime, which were disconcerting. But I think what Covid does is potentially dramatically accelerates that process. On the other hand, New York starts going into this crisis in a much better position, than it was in 1975 because it has happened so quickly. So, that gives you the opportunity to be really innovative and try things that are very different. 

What kind of different things? The example Doctoroff gives is something he tried at the beginning of the Bloomberg administration, right after the 9/11 terrorist attacks. In neighborhoods near the World Trade Center in Lower Manhattan, vacancy rates were as high as 45 percent.

DOCTOROFF: When people said they’re never going to come back to a graveyard, we said, “You know what? If you move back into Lower Manhattan, we will pay 50 percent of your rent for six months.” 

DUBNER: In retrospect, that looks really cheap, doesn’t it?

DOCTOROFF: It was incredibly an inexpensive investment in Lower Manhattan. The vacancy rate went down to 2 percent. And after those incentives wore off, it didn’t go back up again. 

But the difference there is after 9/11, New York City received massive federal aid. Doctoroff, for instance, had $20 billion in federal funds at his disposal to redevelop downtown Manhattan alone. How much direct federal aid is New York City expecting from the Trump administration? The answer to that would seem to be zero — or maybe even negative, as Trump has threatened to cut federal funding. I asked Congressman Max Rose to assess the difference between a second Trump administration and a Biden administration in terms of federal aid to New York.

ROSE: It’s enormous. It’s enormous. I mean, this president and his fully-owned subsidiaries like Mitch McConnell walk around hyper-politicizing this notion of defunding the police. Everywhere they go, they talk about it — when all the while, they are the greatest proponents of defunding the police in the United States of America. 

DUBNER: What do you mean by that? 

ROSE: What happens if we don’t get state and local aid? Cops get fired. That’s plain and simple. They walk around talking about how much they want schools to get opened. But they’re unwilling to sign the dotted line to get billions of dollars back to New York City schools.

So, as Congressman Max Rose sees it, New York is living through another “Ford to City: Drop Dead” moment. Meanwhile, New York Mayor de Blasio has gone to Albany to request the authority to borrow $5 billion to avoid laying off thousands of municipal workers. His request has thus far been denied. The historian Kim Phillips-Fein thinks this may be at least a small blessing in disguise.

PHILLIPS-FEIN: I don’t myself see borrowing as a long-term solution to these problems, partly because it sets up the same dynamic that you saw in the 70s, where creditors are then given a greater amount of power over the city. That’s what the debt does. 

Moody’s, the bond-credit-rating agency, would seem to agree. They recently downgraded New York City’s rating and warned it could be lowered further if the city borrows more money to pay its bills. So, based on what we’ve heard thus far, you might easily think that New York is over. So, does anyone have any actual ideas for how to help the city recover?

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DUBNER: So, big question first, is New York City over?

GLAESER: Ha! No, New York City is not over. It’s not even the beginning of the end. 

That’s the Harvard economist Ed Glaeser.

GLAESER: This is unquestionably a challenge. New York has reinvented itself over and over again in its 400-year history. But I think by the time we’re looking five years out, the city will have largely recovered, and we’ll be entering into the next chapter.

Glaeser is regarded as one of the most distinguished urban economists of his generation. He also happens to have grown up in Manhattan in the 1970s. Which might account for a little bit of his optimism about the city’s recovery now.

GLAESER: I should say that that optimism is predicated on the idea that we will get this pandemic under control in the next 24 months, and that there will not be a second pandemic within seven years that is just as disruptive. I think if the new normal is wave after wave of pandemics, then the city is under a much greater challenge. 

In 2011, Glaeser published a book called Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier. How does he back up such an aggressive claim?

GLAESER: The way I understand this is what’s happened with globalization and new technologies have radically increased the returns to being smart. And we are a social species that become smart by being around other smart people. In the developing world, cities offer the only path we know of out of poverty, into prosperity. And in an increasingly globalized world — in a world in which we don’t need vast numbers of people working in agriculture to feed ourselves — millions of people, billions of people have flocked to cities for the promise of some sort of a future that is brighter than the unending rural poverty that is the past.

DUBNER: You call the city “our greatest invention,” which means you’re putting it ahead of mathematics, the computer, antibiotics, rum-raisin ice cream. How so? How is the city the greatest human invention? 

GLAESER: It is the machine that makes all the other inventions possible, right? And the reason for that is that almost every one of the inventions that you raise, whether it’s mathematics and its development, whether in classical Greece 2,500 years ago or in the House of Wisdom in Abbasid, Baghdad, 1,200 years ago, it is human connections that make that creativity possible. Almost nothing that we have done as a species is a solo creation. We collaborate. We learn from each other. We steal each other’s ideas with some degree of regularity. 

DUBNER: Sure. But you don’t need a city for that necessarily. And obviously, in a digital age, you can connect much more easily.

GLAESER: I don’t think there’s anyone who’s been living through this thing and thinks that, “Boy, what I really want to do is sit in my office alone for the rest of my life and just Zoom.” I have been betting that virtual connections will not replace face-to-face connections for the last 30 years or so. And I’m not going to stop now. And certainly, the techno-prophets in the 1980s argued that the ability to use these fax machines and so forth would make face-to-face interactions obsolete. That seemed wrong to me because it seemed often that face-to-face interactions and electronic interactions were complements, rather than substitutes.

I asked Glaeser to justify each of the claims in his book’s subtitle, that cities make us richer, smarter, greener, healthier, and happier.

GLAESER: Richer: Enormous amount of data showing that we become more productive in cities, that wages are higher in cities, that people come to cities experience wage gains, that wage growth is faster in cities — so, it’s not as if you come in and just immediately gain all the wage gains from being in the city. It’s just that year by year, you experience faster wage growth.

How about smarter?

GLAESER: Smarter? It’s exactly through this channel in which we learn from one another. You know, think about Brunelleschi figuring out the basic mathematics of linear perspective. He then passes it along to some neighbor of his in a city like Florence, like Donatello, who takes that idea and puts it in low-relief sculpture, passes it along to another resident of the city. Masaccio puts it in painting on the wall of the Brancacci Chapel, passes it along to Fra Filippo Lippi, and so forth. The chain of genius: each person becoming smarter because they’re connected to other people in cities.

DUBNER: And yet, I feel I’m becoming a little bit smarter at this moment even though you’re sitting in some exurb of Boston. I’m sitting in some exurb, at the moment, of New York City. And we’re just talking on the telephone, essentially.

GLAESER: Well, it is well-known that Freakonomics podcasts are the best virtual thing out there for duplicating the magic of the city. But Stephen, we would still be learning much more from each other—.

DUBNER: What a dodge that is.

GLAESER: We would still be learning much more from each other if we were face-to-face.

Okay, how about Glaeser’s claim that cities are in fact “greener”?

GLAESER: There are two main reasons why, as a person, your carbon emissions go down from living in dense areas. The first is travel. Americans just take much shorter car trips when they live in dense urban areas than when they live in far-flung suburbs. The second big difference comes from smaller living spaces. It’s not that apartments are magically greener than single-family detached homes. They’re not, but they are typically smaller. And that means less energy spent air conditioning and less energy spent on home heating.

And how about “healthier”?

GLAESER: Well, that certainly has been challenged as pandemics have reared themselves up again. We had a blessed century from 1920 to 2020 when we had almost no significant pandemics, perhaps with the exception of AIDS that struck the urban world. And we noticed an amazing thing, which was that, first, life expectancies equalized between cities and outside areas. And then, life expectancies got longer in cities. In New York, actually — over two years longer in New York. The lower death rates have been attributed to more exercise, more social connection, more active lives.

And finally, happier:

GLAESER: It’s an interesting thing because New Yorkers actually don’t say that they’re happier. In fact, what self-respecting New Yorker is going to tell an interviewer how satisfied they are with their life. But they do, in fact, commit suicide at much lower rates. 

Triumph of the City was published, as I mentioned, in 2011. A lot has changed since then. Even before the pandemic, even before New York and other cities went into lockdown, Glaeser had taken a hard look at how cities were coming up short of their promise. He wrote a paper called “Urbanization and its Discontents.”

GLAESER: The sort of backdrop for Triumph was the 1970s. And relative to where we were in 1977, with the city on the edge of bankruptcy, with crime rates soaring, with industry leaving by the hundreds of thousands of workers, all right, cities in 2010 or 2020 still feel reasonably triumphant. Part of what happened between 2010 and 2020 was we started just expecting more from our cities than a reasonably safe place to make a living. We started expecting that it would start solving a wider range of social problems. We started to become less tolerant of the inequalities that exist in cities. 

Glaeser points to several urban discontents; an obvious one is the low availability and high cost of housing.

GLAESER: It is certainly true that the city’s own triumphs sowed the seeds for the housing market difficulty and for the anxiety about gentrification. Both of those reflect the fact that you have rising demand of the city that’s not being met with accommodating space and hence is pushing its way into neighborhoods that didn’t really want to be pushed into. 

High housing prices also work against the wage advantage that cities confer, especially for less-educated workers in expensive cities like New York and San Francisco.

GLAESER: Their wages have actually gone up, right? And so, if you’re looking for a job, at least pre-Covid, if you were trying to find a job as a bartender, you were going to be paid a lot more in San Francisco than you were going to get paid in Atlanta. On the other hand, the competition for urban space has meant that those wage gains have been eaten up by the price gains. So, their quality of life is higher, their earnings are higher, but they’re paying through the nose for their living space. 

Another urban discontent: income mobility, or the lack thereof.

GLAESER: It really does look that while cities were doing a great job of enabling adults to connect with labor markets, they were really not doing a great job helping kids to thrive. The lack of urban opportunity for kids growing up in cities, those are a disturbing set of facts. 

DUBNER: So, of the discontents that you list, if you could fix one — and let’s say we’re talking about fixing one pre-pandemic because there’s so much in flux now. Which would it be? Which discontent, if you could have some kind of magic wand or a lot of leverage, do you think would help take care of a lot of the others?

GLAESER: Oh, look, it’s always about the kids. It’s always about urban education. It is by far the most important thing. Now, unfortunately, it’s the hardest thing. If you asked me which one I know how to fix — I mean, I don’t know how to fix the politics of housing supply, building more apartments — I know how to make New York affordable. You build 100,000 new units a year. There’s a technological fix. Whereas the schools, they’re living, breathing organisms with teachers and kids. And it’s just really hard. But if you gave me a magic wand to fix, I would fix those schools.

There’s another urban discontent that has re-arisen lately.

DOLEAC: People are concerned about what appears to be an increase in homicide rates in at least some cities.

That’s Jennifer Doleac, an economist at Texas A&M who studies the criminal-justice system.

DOLEAC: Crime is often part of the conversation around the state of our cities and whether they are appealing to live in, whether they’re safe to raise children in. 

Over the past few decades, there had been a strong positive trend.

DOLEAC: So, basically crime rates, especially violent crime rates, dropped substantially beginning in the early to mid-90s. And it’s basically been a nonstop drop since then. And so, the conversations we’re having now around an uptick in especially homicide rates during the last couple of months, you know, we’re still at historic lows in terms of crime rates.

How big is this uptick?

DOLEAC: So, the best research on this, I think, is by David Abrams at the University of Pennsylvania, where he has aggregated a whole bunch of data at the city level over time. And he finds that, on average, there is about a 5 percent increase in homicide rates. 

A 5 percent increase, especially coming off such a long decline, doesn’t sound that significant. So, why is there the sense that crime has gotten so bad?

DOLEAC: I think part of the reason is just the way the media talks about crime and the way that politicians, particularly our president, have been talking about crime. And so any increase in crime then becomes extremely salient to people when it’s mentioned in the news all the time. 

DUBNER:Right. So, keeping in mind that 5-percent average increase in homicides — some of the cities I’m looking at in these data have a much larger year-over-year increase: Philadelphia, up 23 percent; Chicago, up 34 percent; New York City, up 23 percent; New Orleans, up 36 percent. On the other hand, when you look at all these cities, even when their homicide rates have not risen that much, most non-homicide crimes have, since the pandemic began, fallen. So, why is that? Why would homicides be rising when almost all other crimes in most places seem to be falling?

DOLEAC: That is a great question. I’m not sure we have a great answer to it yet. I think a lot of the other types of crimes depend heavily on foot traffic. If we’re talking about robberies or muggings, if people aren’t out and about anymore, then there’s no one to rob. We see home burglaries are down a whole lot. And that’s probably because people are home and burglars don’t like to break into homes when people are there. We actually see an increase in commercial burglaries, so breaking into stores that are closed now, which sort of makes sense.

Homicide, it’s a bit of a mystery. And I think the mystery is compounded by the fact that we’re seeing different effects in different cities. So, it’s hard to come up with a really clear story. It’s possible that some of this is gang violence. And so, if people aren’t out and about, then there aren’t witnesses and bystanders who might deter violent crime or violent confrontations among people that perhaps don’t care about stay-at-home orders. Something else that has been written about quite a bit now is what happens to domestic-violence rates. We see domestic violence rates increase quite a bit. Some of those surely are turning into homicides. But that probably is not explaining all of the potential effect on homicides in these cities. 

Another hypothesis, with some evidence provided by research from the economist Roland Fryer is that when a given police department has been accused of brutality or using excess force, they tend to pull back from their crime-prevention duties.

DOLEAC: There have been a few papers on this at this point. And most of them suggest that a reduction in police effort or these police slowdowns probably are causing an increase in crime. It’s a longer and highly contentious conversation about whether it’s reasonable for the police to be pulling back in the current moment. But, if they are, then it would be reasonable to expect that to contribute to increasing crime rates. 

The summer of 2020 saw many urban police departments under scrutiny, with widespread calls for police reform and defunding.

DOLEAC: I live in Austin. And I think they just voted to cut our police budget by a third. I am very interested to see how that plays out. And so, I think—.

DUBNER: “Interested” — like, with-one-foot-in-the-moving-van interested or—?

DOLEAC: Not that interested. But I mean, I do believe strongly enough in the research that increasing policing reduces crime rates. The broader conversation about reducing police budgets and shifting that money to other social services that could also reduce crime I think are very useful conversations to have. And I’m all for trying some of those kinds of reforms. I think the challenge is that those types of changes are not going to happen overnight. And so, seeing some places cut their police budgets without a very clear plan as to how they’re going to essentially replace those efforts immediately in some other fashion — that makes me nervous.

Rising crime in cities, or even the perception of rising crime, tends to be an outsized factor in driving residents out of cities, especially those with high education levels and with kids. Ed Glaeser, even though he grew up in New York in the midst of the fiscal crisis, has more vivid memories of the crime threat than the bankruptcy threat.

GLAESER: The set of blocks in which you could safely walk was becoming smaller and smaller over the course of the 1970s. I remember having this strategy of muttering loudly to myself in hopes that people would think that I was either a heroin addict or otherwise insane and leave me alone. 

Again, the pandemic is a different kind of threat to New York than the fiscal crisis was. But I asked Glaeser to take a step back and talk about how to prevent another 70s-style “vicious cycle.” By the way, New York Mayor Bill de Blasio is term-limited and will be replaced in a 2021 election.

GLAESER: So, we’re going to need to move and move quickly back to a managerial style of city government, right? We’re going to need to move back to figuring out which taxes are going to scare off the least tax base. It’s crucial that we maintain basic city services. And it’s crucial that we not ask any particular sector to bear all the burden. We need to have a managerial approach that tries to spread the pain and that tries to keep the core services still functioning. 

DUBNER: Do you see anyone running for mayor in New York City who fits those characteristics? 

GLAESER: I don’t have a view yet. I need to see more. So, one thing, it is not running a punitive city, not deciding any group of your city are going to be attacked — and this is why it’s so crucial not to think that the fiscal burden is going to be imposed on any one sector. That’s absolutely crucial. A second thing is, it’s a style and it’s an openness. And it is also encouraging the ground-up, organic attempts to enable civic leaders to do their own thing and have respect for that. It’s a willingness to share the spotlight when appropriate, not to try and grab all the oxygen in the room. 

DUBNER: Let’s talk about regulations. And I’m particularly interested to know if, for those who would like to see cities really change their regulatory position, whether the pandemic might prove an opportunity for that to happen. So, you write in your paper, “When Mark Zuckerberg started Facebook in his Harvard College dormitory, he faced few regulatory hurdles. If he had been trying to start a bodega that sold milk products three miles away, he would have needed more than 10 permits.”

GLAESER: You know, I’ve been agonizing over this for a while. And I think one of the reasons why cyberspace has proven to be such an attractive place for new talent is it’s been kind of a wild, wild west. Whether you were trying to sell books or establish search engines or set up social networks, the regulators weren’t there. They were playing catch up, just as they are in cities. But this meant that you could go and start your thing. And eventually, someone realized they didn’t actually like all the things you were doing. And they tried to clamp down. But you were so far ahead that you were free to do whatever you wanted. Whereas in terms of starting a small grocery store, starting anything with a physical footprint, governments were already there, sometimes for good public-health reasons, sometimes to protect incumbent businesses. Both cases, you’ve got to run through this gauntlet of regulations.

Now, does the pandemic afford us a reset? Gosh, I really hope so. Because one of the things this pandemic is doing — it is an absolute catastrophe for America’s small businesses, for cities’ small businesses who came into this with a very thin wafer of financial cushion. Many of them are being wiped out now. And so we will have to have new businesses replace old businesses. And I will stress if we make it easy to start new businesses, lots of business closures are okay. It’s really okay that a business shuts down — if one restaurant shuts down, and a new restaurant opens in the same place. But you need to make it easy for the same restaurateur who went broke in April of 2020 to reopen in April of 2021. And so, it is so crucial that cities understand that this period, if there’s ever been a period to restart business regulations, this is the time. 

And how, exactly, does Glaeser see this happening?

GLAESER: Start with one-stop permitting. Whatever it is you think permits need to go through, you want one person for the businesses to connect. So, right now, there is a plethora of different agencies. You need to see the fire department for this, and you need to see the police department for that. You can have one person who specializes in making it easy for businesses.

Two, start doing cost-benefit analysis on all those regulations. No one has ever applied a single decent piece of cost-to-benefit analysis to any of this stuff, and they just accrete over time. So, create yourself whatever blue-ribbon commission you need and allocate some amount of money to do this, and make the thing work.

And third, it probably is worthwhile thinking about what you’re doing around the real estate taxes on commercial space relative to residential space. New York is a very messed up property-tax regime. It has long been overdue for the city to move towards a more sensible, more transparent system where we don’t treat different forms of property wildly differently in terms of their tax burdens. 

Ed Glaeser has already given the New York City and State governments plenty to work on. And he barely got to touch on one of the most crucial problems that must be addressed in order to keep New York and other expensive cities from spiraling downward: the housing problem. That’s where we’ll pick up this conversation next time.

*      *      *

Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Zack Lapinski. Our staff also includes Alison Craiglow, Greg Rippin, Mary Diduch, Corinne Wallace, Daphne Chen, and Matt Hickey. Our intern is Emma Tyrrell. We had help this week from James Foster. Our theme song is “Mr. Fortune,” by the Hitchhikers; all the other music was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts.

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Decamillionaire Democratic Presidential nominee, Joe Biden, has stated he will raise taxes on people making over $400k a year if he is elected. Biden has called anybody who makes more than $400k “rich” and should, therefore, pay “their fair share” in taxes. Further, if Joe Biden is elected, once you make more than $400,000 a

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Just because you have a life insurance policy doesn't mean you're fully covered. In fact, many are underinsured without even realizing it.

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Today, I’m partnering with BlockFI in this BlockFI review.

Welcome to my BlockFI review!

As I’m sure you have all noticed, basic savings accounts rates at banks are extremely low right now. However, if you have crypto or are interested in getting into crypto, then BlockFi is something you may want to look into.

Crypto is extremely popular right now, and I expect that demand to just continue to increase.

According to Finder*, an estimated 36.5 million Americans own some form of cryptocurrency.

I’ve also seen a growing trend amongst those who travel extensively or full-time putting at least some of their money into cryptocurrency, due to the ease of use when traveling around the world.

This is where BlockFi comes in.

BlockFi offers crypto interest-earning accounts, crypto-backed loans, and fee-free trading on crypto. Their services are available in most countries around the world and in almost every state, with some geographical restrictions.

If you sign up through my referral link, then you will receive a $25 crypto bonus with a deposit of $500 or more in crypto. Simply click here to use my BlockFi referral code.

Today, I’m going to go over common questions about BlockFi such as:

• How was BlockFI started?
• What is the BlockFI interest account?
• Can I buy Bitcoin on BlockFi?
• Is BlockFi safe?
• How long does it take to withdraw from BlockFi?
• Does BlockFi have an app?
• How do I sign up for BlockFI?

And more!

Continue below to read my BlockFI review.

 

How was BlockFi started?

BlockFi was created by Zac Prince and Flori Marquez in August of 2017.

Zac Prince first bought bitcoin in 2014 and has been writing about it pretty much ever since. Eventually, he had built a substantial amount of bitcoin, and went to a bank for a loan. However, that bank rejected his loan request and didn’t count his bitcoin as an asset, instead, valued it at $0.

This is when Zac came up with the idea to start his own crypto finance platform that would accept crypto as an asset.

Nowadays, BlockFi has customers from over 120 countries.

BlockFi has investors that include Fidelity, SoFi, Valar Ventures, Winklevoss Capital, Galaxy Digital, university endowments and more.

BlockFi also recently raised $50,000,000 in Series C funding, and is growing enormously (in total BlockFi has raised $160 million since it was founded in 2017.). There are over 50,000 funded accounts currently, with over $1.5 billion in assets on the BlockFi platform.

 

What is the BlockFi interest account?

The BlockFi Interest Account is a crypto interest-bearing account with a highly competitive interest rate.

BlockFi pays compound interest, which means that your crypto accrues interest daily, compounding on a monthly basis.

BlockFi rates on their BlockFi Interest Account are up to 8.6% APY.

Below, you can see the BlockFi rates as of October 1, 2020.

 

Can I buy crypto on BlockFi?

Yes, you can buy crypto on BlockFi.

So, if you don’t have crypto but are interested in getting into it, then BlockFi can help you make that happen.

You simply send a U.S. Dollar wire to the BlockFi platform and purchase Stablecoin. 

Stablecoins are crypto tokens pegged 1:1 to the U.S. dollar. So one stablecoin equals $1. They were created to have a stable price and are therefore a way to turn your U.S. dollars into digital assets and earn a highly competitive interest rate.

You can choose to keep and earn interest on your stablecoin, or you can trade your stablecoin for other supported assets such as BTC, ETH, LTC, and PAXG.

Here are the steps:

1. Sign up for a BlockFI account
2. Select “Deposit” at the top
3. Select “USD (wire transfer)” as your deposit currency
4. Follow the “Wire Deposit info” steps
5. Once BlockFI has received your wire funds, they will send you a confirmation email. This usually takes about 1 to 3 business days.

 

What are the risks of using BlockFi?

I’m sure you’re wondering if BlockFi is regulated and insured – that makes sense and is a good question to wonder about.

Here’s what BlockFi says about the risks of depositing crypto at BlockFi:

“Gemini is BlockFi’s primary custodian. To provide the highest levels of security to any assets safeguarded by Gemini, they keep a majority in cold storage wallets and only a small, operationally determined amount in hot wallets. These hot wallets are covered by an industry-leading insurance policy and the total value of assets stored there will never exceed that policy – this rebalancing is managed using both automated and manual controls. As a limited purpose New York trust company, Gemini Trust is a qualified custodian and regulated by the New York Department of Financial Services. Additionally, Deloitte completed a SOC2 examination of Gemini’s custody solution — you can read more about Gemini’s SOC2 compliance here and about their security here. 

To earn interest on crypto, we lend out assets deposited at BlockFi to vetted institutional counterparties. Our risk and finance teams work collaboratively to review all of our counterparties before they become a qualified borrower. You can read about how we generate our yield for our interest accounts here. Additionally, here is a great resource to learn more on the intricacies of our crypto lending market.

Please also note that digital currency is not legal tender, is not backed by the government, and BIA accounts are not subject to FDIC or SIPC protections. This is not a risk free product.”

 

How long does it take to withdraw from BlockFi?

You can withdraw your funds at any time. While subject to change, BlockFi currently offers one free crypto withdrawal and one free stablecoin withdrawal per calendar month. Withdrawals are subject to a security hold but are typically processed as soon as the next business day after that hold clears. BlockFi reserves the right to take up to seven days to process withdrawal requests.

On BlockFi’s website, the company says:

“This security protocol is in place for the benefit of clients to protect your assets and ensure they are safely and correctly returned to your exact wallet. While we acknowledge this may cause a slight inconvenience, we have to find a balance between speed and security. This security measure has allowed us to identify fraudulent withdrawal requests in the past, and alert clients that their account may have been compromised. We are actively working to find ways to increase the speed of withdrawals while also remaining secure in order to protect our clients.”

 

Does BlockFi have an app?

Yes, BlockFi has an Android and iOS app.

Their app makes it easy to manage your BlockFi account while on the go.

 

What else can I do on BlockFi?

BlockFi also gives you the ability to exchange cryptocurrency pairs between BTC, ETH, LTC, PAXG, USDC, GUSD, and PAX.

BlockFi also has crypto-backed US dollar loans. That means that with BlockFi, you can use crypto as your collateral, and you can unlock up to 50% of the value of your assets in US dollars. With their crypto-backed loans, they also fund the same day through wire or stablecoin.

So, whether you need a crypto-backed loan to pay off your debt, to buy a home, or for something else, this could be an option for you to look into.

 

Need a BlockFi referral code?

If you sign up through my referral link, then you will receive a $25 crypto bonus with a deposit of $500 or more in crypto.

Simply click here to activate my BlockFI referral code.

 

Is BlockFi legitimate? Is BlockFi worth it?

Yes, BlockFi is legitimate!

Here are some of the positives of BlockFi:

• There is no minimum deposit – so you can get started even if you aren’t rolling in crypto
• BlockFi is easy to use, and there’s even a nice, clean app to navigate
• BlockFi takes security seriously, and there are no lockups
• BlockFi offers a highly competitive interest rate
• Plus, if you’re not interested in cryptocurrencies as an investment, you can earn an extremely competitive interest rate by digitizing your cash and turning it into Stablecoin. This means BlockFi is great for people who are crypto curious and want to explore new interest earning opportunities.

Here’s an example of how much you could earn in interest using a BlockFi Interest Account based on price appreciation with BlockFi’s current interest rates.

Over 10 years, compound interest at 6% APY results in 79% more value. That’s a lot of extra value in bitcoin that stands to be earned.

 

How do I sign up for BlockFI?

It’s easy to sign up for BlockFI.

Simply click here to use my BlockFI referral code and you will receive a $25 crypto bonus with a deposit of $500 or more in crypto.

What do you think of BlockFI? What other questions do you have for my BlockFI review?

 

* Statistic from Finder

The post BlockFI Review – Earn Interest On Your Crypto Up To 8.6% appeared first on Making Sense Of Cents.

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I’m always searching for reasons why things are the way they are. It’s also fun to connect the dots and come up with an investment thesis to make a lot of money. What I’ve recently discovered is that because the minimum qualifying income required to purchase a house is so low, there is still a

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How can I protect my finances from identity theft? What is the difference between LifeLock and Identity Guard's services?

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Should you pay off debt or save money?

I wish this was a super easy article where I could just give you a clear answer about whether you should pay off debt or save money, but that’s just not how personal finance works.

Every situation is different, and today, I’d like to go over different circumstances so you can figure out the best answer for your personal situation.

Whether you have a mortgage, student loans, a car loan, credit card debt, medical loans, or something else, you may be wondering if you should only focus on paying off your debt and how saving money fits in as well.

And, you may be stuck.

A big question when paying off debt is if that should be your sole focus. Should you still be trying to save money while paying off your debt?

Or, should all of the extra money you have be going towards your debt?

You may be wondering things such as:

• Should I pay off debt or emergency fund first, as in set some money aside for emergencies?
• Should I pay off debt or save up for a downpayment?
• Should I pay off debt or save during a recession?
• Can I pay off debt AND save money at the same time?

And so on and so on.

Paying off your debt is a great thing to think about.

However, where does saving money come in when it comes to your overall financial plan? 

This becomes the really tough decision – should you pay off debt or save money? Is It better to pay off debt or save? Should you do both at the same time? 

I am asked these questions all the time because people realize that both are very important personal finance decisions. But, everyone is going to have to make the best choice for themselves.

If you’ve read How I Paid Off $40,000 In Student Loans in 7 Months, then you know that I paid off my student loans quite quickly. In order to do this, I had to decide whether to focus on my student loans and pay off debt, or invest in my long term savings plan.

It was an incredibly tough decision to make, but I made paying off my debt my sole focus.

Deciding to pay off my debt while putting $0 towards my savings did not sit well with about 50% of my readers.

But, that’s personal finance – it’s personal!

Just because I made this choice doesn’t mean that it’s the only choice. In fact, I think that saving some would have been an equally good decision (maybe even better).

If you are asking yourself whether to pay off debt or save money, I can’t give you a definitive answer because everyone’s situation is so different. 

However, I am going to go over some common questions about this topic to help you make the smartest decision for your situation.

Content related to pay off debt or save money:

• How We Paid Off $266,329.01 in 33 Months
• 37 Crazy and Creative Strategies To Pay Off Debt From Real People
• How Amanda Paid Off $133,763 In Debt in 43 Months
• How Our Family of 5 Went from House Poor to Debt Free in 3 Years

Should you pay off debt or save money?

 

Are you paying the minimum payment on your debt?

In pretty much every situation, you should always pay at least the minimum balance on your debt.

So many people do not really understand what a minimum payment is, so before I talk any more about deciding to pay off debt or save money, I want to talk about this.

Here’s a basic breakdown of what minimum payments are:

• Minimum payments are basically the smallest amount your lender will let you pay each month.
• Making only the minimum payment leads to paying more in the long run because of interest charges.
• While minimum payments may keep you in good standing, they can affect your overall credit score.

You should always try to pay more than the minimum payment, even as you decide to pay off debt or save money. If you do not, you will have to pay interest charges, which may inflate your credit card debt significantly each month.

Related: How Do Credit Cards Work? I Answer The Most Important Questions

 

Should you pay off debt or save money during a recession?

In today’s current environment, this is an important and popular topic to talk about.

While I think that you should make sure you are paying the minimum payments on your debt each month, you also want to think about the future. If you are putting a lot of money towards your debt each month but have the possibility of losing your job, then you may want to build up your emergency savings as much as you can.

If you have a stable and secure job that you don’t think would be impacted by a recession (it’s very hard to be certain about this), then you may decide to continue to pay off your debt as quickly as possible.

I have heard many people say that 2020 has taught them the importance of having a larger emergency fund. Their experiences are helping them decide whether or not to pay off debt or save money, and many are choosing to save.

 

Do you have an emergency fund? Should you have an emergency fund if you are in debt?

So many people wonder if they should have an emergency fund while they are paying off their debt.

I am a big fan of emergency funds, and I think most people should have one even if they are paying off debt.

In fact, I had an emergency fund while I was paying off my debt.

Now, I know that some of you may want to fight me over this, but I had an emergency fund because you never know when something unexpected will happen. It’s just that simple.

I recommend having an emergency fund of at least $1,000 while you’re paying off debt – it doesn’t need to be the full six months (or whatever number) of expenses. $1,000 is still a small cushion to help you in case of an emergency.

After that amount, you need to determine what you are comfortable with.

Having an emergency fund protects you from taking on more debt, and it will help you continue making your debt payments if something happens.

What if you had a medical emergency, immediate home or car repair, and more?

Having $1,000 in your emergency fund versus $0 can make all the difference if something comes up. You will be less likely to add to your debt if you have money set aside specifically for emergency expenses.

Without an emergency fund, you may add to your debt, and it will possibly be at a higher interest rate because you may have to use a credit card. This can turn into a disastrous situation. 

You have been working so hard to get out of debt, and an emergency fund can help you stay on track.

Also, even if you can only manage $100 to $500 right now, that is better than nothing. It may not cover the entire cost of your emergency, but it will help you a little bit. 

Note: On top of an emergency fund, I also recommend having an emergency binder. I recommend checking out the In Case of Emergency Binder to help you with creating your own emergency binder. This is a 100+ page fillable PDF workbook. There are 14 sections that go over key personal documents, household information, medical information, insurance policies, and more.

 

Should you use your credit card as an emergency fund?

You may be thinking “Well, I can just pay off my debt and not save for an emergency fund, and if something comes up, I’ll just use my credit card.”

Before you do this, I want you to fully think about it.

There’s a growing number of people who are looking to their credit card as their emergency fund. Some are doing it by choice, and others are forced to use their credit card when an emergency comes up because they do not have enough money saved.

This is something that scares me. While credit cards may work for some, I believe that a more traditional emergency savings fund is a better solution for the average person.

If your situation is quite risky, then using a credit card for your emergency fund may be a bad idea. This is because there is a greater chance of racking up credit card debt and being unable to pay it off whenever an emergency arises.

You are taking on a lot of risk if you are relying entirely on a credit card emergency fund.

You never know if something may come up, how big the expense may be, and whether or not you will have a large enough credit limit to fund the expense.

Plus, the interest rate on your credit card may hover somewhere near 20% or more, which makes for an expensive bill if you are unable to pay your credit card balance before interest accrues.

There are situations where using a credit card for your emergency savings fund may not be a completely bad idea. If you know that you can pay off a large expense within one month, then using your credit card as an emergency fund may not be a bad idea, but you still need to be careful before adding any debt.

See, the problem with this thinking is what happens if you lose your job? Many people have emergency funds so that they can support themselves if they were to lose their job. What would happen if you relied on credit cards but lost your main source of income?

This could lead to a lot of credit card debt.

My problem with using credit cards as your sole source for an emergency fund is that, in some situations, it may lead to more debt. Sure, some people can use their credit cards to their advantage, but the average person most likely needs a real emergency fund that they can count on.

My point here is to be honest with yourself so that you can prevent yourself from adding any debt and being in an even worse situation.

 

How fast do you want to get rid of your debt?

How quickly you want to pay off your debt will play a big role in your decision to pay off debt or save money. People who want to quickly get rid of their debt will most likely want it to be their sole focus.

Here’s what I did when I decided to pay off my $40,000 student loan debt in 7 months:

1. I saved up a few months of expenses in an emergency fund. Since my student loans were at a 0% interest rate while I was in school, I saved money in an emergency fund just in case I needed it.
2. Once my student loans came due, I decided to knock them out as quickly as I could.
3. I then started putting 100% of what I could towards debt. Towards the end, I used a portion of my emergency fund to pay off my student loan debt.

Like I keep saying, my decision isn’t perfect for everyone. This is simply what I did.

I chose this option because I wanted my student loans to be completely gone as quickly as possible.

That huge monthly payment felt like such a big weight hanging over my head, and I wanted to stop worrying about it.

If you hate debt as much as I hated my student loans, then this may be the option for you as well.

Some people, like myself, get stressed out by debt, or certain types of debt, which can impact other areas of their lives. 

If having debt is leading to extra stress, which can lead to health issues, impact your relationships, work, etc., then focusing as much energy as possible on debt repayment might be the best option for you.

Eliminating means you are then free to focus on other areas of your financial situation, such as saving money for your future. 

Solely deciding to pay off debt or save money is almost like choosing to single-task versus multitask. You put all of your energy into one thing so you can focus on doing it efficiently and well, and once you are finished with that, you can put all of your energy into your next goal.

 

What’s the interest rate on your debt?

Now, there’s a chance that you may not really mind debt. Debt doesn’t have to be the end of the world, and many people are able to use debt to their advantage.

That might sound crazy, but it can be done!

If you have a low interest rate, then this may be something that you are thinking about – saving more money instead of throwing everything towards your debt.

I still remember my finance and economics professor in college talking to me about his student loans. He wasn’t worried about paying them off quickly because the interest rates were 2% or less. Instead, he put as much money towards investing because he figured he could beat his interest rate by investing in the stock market and in other areas of his life.

However, if your interest rate is high, then you may want to quickly pay off your debt.

For example, credit cards often have interest rates around 20%. There are also high interest rate student loans (like private student loans), high interest rate car loans, crazy expensive leases (such as on furniture), and more. 

These are the types of debt that you will really want to focus on because as that interest adds up, you ended up paying exponentially more in the long run.

The higher the interest rate, the more you should think about quickly paying off those debts. Interest on those debts is just going to keep piling up until it just seems so unmanageable, and this can make your long term savings and investing goals seem impossible to reach.

My personal thought on whether to pay off debt or save money in this situation is that if your interest rate is around 6-8% or higher, then you may want to think about paying off that debt a little quicker so that the interest charges don’t build up too much.

 

Do you get a company match on your retirement savings?

If your company provides a 401(k) match, then this is a benefit that you will most likely want to accept as you decide to pay off debt or save money and invest for retirement. 

If your company matches your 401(k) contribution, they are giving you money, for free. Even if you add a little in, you can still take advantage of their contribution.

If you don’t take it, then you are leaving a valuable benefit on the table, one that you have earned by working. It’s not like you would just let the company keep a paycheck of yours, and you can treat a company match similarly!

 

Should I pay off debt or save for a house deposit?

Because mortgage interest rates are so low right now, I’ve been hearing a lot of people talk about wanting to take advantage of those low rates and buy a house. For many, this means they will have to decide if they want to pay off debt or save money for a down payment.

The amount of money you have for a downpayment means you can take out a smaller loan and get a better interest rate, but having too much debt means you might not get the loan in the first place. And, because debt can negatively affect your credit score, you may end up with a higher mortgage rate.

You may want to play around with a mortgage interest rate calculator (there are lots of free ones online) and see how what you pay over the course of your mortgage will change with different interest rates and down payment amounts. 

Then, you will have to think about the kind of debt you have. Remember, high interest rate debt can cost you much more in the long run if you are only paying the minimum amount due each month.

Buying a house isn’t something you should take lightly, and there are lots of factors to consider, especially if you already have a lot of debt.

 

Should you pay off a mortgage quickly or not?

Recently, I had a great guest post here on Making Sense of Cents about a reader who was wondering if they should pay off their mortgage quickly or not.

You can read the full article here: Should we pay off our mortgage quickly or not?

I wanted to share their thought process in this article, though, as it is so relatable and applicable.

Here’s a quick summary of their pros and cons.

Pros to paying off a mortgage quickly:

• They’d free up cash flow that would otherwise be used to make a mortgage payment each month.
• They’d be debt free. For life. From all debts. Forever.
• It feels good. They’d achieve peace if they paid off the mortgage ahead of time, especially before retirement.
• They’d have the mortgage paid off before their kids headed off to college.
• The interest they’d save! They would save thousands upon thousands of dollars in interest if they worked diligently to pay it off.

Cons to paying off a mortgage quickly:

• Lots of cash would be tied up in the house – a non-liquid asset.
• Their interest rate is low – and the annualized return for the S&P 500 is roughly 10% over the last 90 years. They’d be missing out on higher returns if all of their efforts were put into paying off their house.
• They’d no longer be eligible for a mortgage interest tax deduction.

 As you can tell, there is a lot to think about!

 

Do you have a pros and cons list?

The last question leads to the next thing that I think is important when deciding to pay off debt or save money – make a pros and cons list for why you may want to solely focus on paying off debt and what it means for YOU.

Remember, everyone’s pros and cons list will be personal, so I recommend sitting down, grabbing a pen and paper, and actually writing it out.

This will make it feel much more real, and you’ll be able to get your thoughts out and on paper.

 

How to pay off debt and save money at the same time.

Deciding only to pay off debt or save money doesn’t have to be the only option – you can do both at the same time.

It may take more work, but it can be well worth it to pay off debt and save money at the same time.

Here are some ways to both pay off debt and save money at the same time:

• Make a budget.
• Use your tax refund. If you receive a tax refund, you may want to split this between your debt as well as save some of it.
• Set aside a certain amount out of each paycheck. You can set aside a certain amount of each paycheck to put towards your debt, and a separate amount for your savings.
• Find ways to make extra money – Here are over 100 different ways to make extra money
• Start a savings challenge – The $20 Savings Challenge is a great way to easily save $1,040 this year without noticing! All you have to do is save $20 each week for a year, and then you’ll easily have $1,040. If you start this now and do it just until the holidays, you will have a nice chunk of change as well! You can get the free printable here.
• Use a micro-savings app like Qapital – You can set triggers for saving, like when you post a status update to Facebook, when the space station flies over your house, etc. You can also set automatic deposits, do round-ups, and more.
• Cut your expenses and split the difference between paying off debt and savings.
• Pay yourself first.

And the list goes on and on!

Again, deciding to pay off debt or save money isn’t your only option!

 

Don’t be too hard on yourself.

While I realize that choosing to pay off debt or save money can be an incredibly hard decision to make, you should remember that both are good things to focus on.

Both deciding to pay off debt or save money will bring you closer to achieving your financial goals, and the fact that you are doing one or the other means you are making a positive decision for your future.

This is really important when deciding which to focus on – both choices are good. 

If you are just absolutely stuck and still asking, “Should I save or pay off debt?” then you may want to put half towards your debt and half towards your investments, so that you can move on with life and spend more time improving your finances in other areas.

Also, remember that you can always change your decision and do something different later! If you find that something isn’t working, you can make changes.

Lastly, remember that personal finance is personal. What may have been a great decision for one person doesn’t mean it will always be the best choice for you. You will want to weigh your options and see what is best for your specific situation.

What would be your choice? Should you pay off debt or save money? A healthy balance of the two?

The post Pay Off Debt Or Save Money – Is One Better For You? appeared first on Making Sense Of Cents.

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