This Week In Your Wallet: ARMs, ESGs, & Crypto Critics

In Demand And Their Demands:
The Class of 2022

As summer fully comes into view and HerMoney makes plans to welcome our first 2022 graduate to the team later this summer (woot!), I’ve found myself thinking a lot about this graduating class. They just crossed the finish line in a race that included a global pandemic, economic uncertainty, and more remote zoom classes than anyone (teachers included) cared to count.

Despite everything they’ve been through, their futures — and the job market — look bright. Not only are recent grads in demand, they’re increasingly able to make demands when it comes to their careers. In The Wall Street Journal, Lindsay Ellis shines a spotlight on just how good things are. (As long as you don’t drop out of school to get them, cautions Mary Daly, President of the Federal Reserve of San Francisco, who made that mistake years ago.) There’s a laundry list of things that 2008 grads, for example, couldn’t have dared to dream. Today’s grads are getting several competing offers (sometimes three or more), they’re able to be choosy about salary and workplace culture, they’re being granted greater flexibility, and they’re increasingly prioritizing offers that enable them to work on-site. That last part surprised me, but it shouldn’t. These young adults had to navigate their college education through the pandemic, which meant slogging through online classes and adapting to the myriad challenges of a remote world. Yes, it made them resilient. But now, they’re in search of some face-to-face work, and on-site training.

To all the hiring managers out there: these are all important things for you to keep in mind as you scan this recent class for your new hires — and to all the grads, let me first say congratulations. Next, let me say: don’t settle. And if you’re just starting your career journey, I’d be remiss if I didn’t point you to our first HerMoney book, "How To Money" that dives into how to craft the perfect résumé and cover letter and knock those first interviews out of the park. You got this.

Shareholders Taking Action

I haven’t addressed the seemingly endless cycle of mass shootings and death in our nation in this space. They sicken me. I believe there are no rights greater than a child’s right to walk into their elementary school every morning, and walk out safely at the end of the day. And the discourse of prayers, thoughts and sorrow from people who won’t do anything, well, it sickens me as well. Which is why I wanted to shine a light on two things. First, what Uvalde-born Matthew McConaughey penned for USA Today. I don’t agree with his views on guns. I do believe that his approach is 100% a step in the right direction. And if you’re struggling with what to do, here’s another thought. Some feel our best chance at change will happen when we cast our votes in November. But others don’t want to wait that long, and they feel that circumventing politics completely is perhaps the better path — they’re vying for changes via shareholder resolutions to encourage gun makers to rein in their products. Just this week, a majority of shareholders of the gunmaker Sturm Ruger & Co voted in favor of a shareholder resolution calling for a human rights impact report. Activists hope the report will yield "common ground on common-sense approaches" to gun safety.

Of course this concept isn’t new. In the past, investors in oil companies have tried to enact resolutions to bring about environmental changes. But in the last few years, shareholders’ willingness to vote in favor of E.S.G.-oriented proposals is rising. In 2021, 44% of shareholders in Smith & Wesson voted in favor of an investor proposal that the company adopt a human rights policy — up from 36% who supported a similar proposal filed in 2019. And on Wall Street overall, the world of E.S.G is expanding rapidly. The focus on environmental, social and governance has led banks to pare back on financing fossil fuels, led Fortune 500 companies to diversify their corporate boards, and led many investors to avoid certain industries altogether, like private prisons and tobacco.

And, yes, the activists at the center of the Strum & Ruger resolution know that a human rights impact report is far from a law that would, say, ban AR-15s, as The New York Times Emily Flitter reports, but they say it’s a start, and far better than the "current posture of heads in the sand." So, consider this your reminder that as you vote in November, don’t forget to vote with your wallets as well.

These Aren’t Your Parents’ Adjustable Rate Mortgages

Amid federal interest rate hikes, the housing market will hopefully begin its long-awaited (and much-needed) cooldown. (We’re already seeing housing prices drop in cities including Chicago and Los Angeles) And as things level out, adjustable rate mortgages (ARMs) are making a comeback. Applications for ARMS — mortgages that carry a variable rate that can fluctuate on a monthly or yearly basis — just hit their highest level since 2015.

ARMs can be enticing, particularly during rate hikes, because they can initially offer lower rates on the first 5-10 years of a home loan when compared to a traditional loan. But if 2008 is a not-so-distant memory for you, and right now you’re thinking ARMs were exactly what fueled the 2008 housing market crash and left millions of people underwater on their homes, then it’s time for a crash course in what a 2022 ARM actually looks like. Orla McCaffrey breaks it down in the The Wall Street Journal. To put it simply: These are not the ARMs of 2008. In short, homebuyers leading up to 2008 were enticed with ultra-low rates that allowed them to stretch their budgets well beyond what was reasonable, and that, paired with lax lending requirements, was a recipe for disaster. When the rates on the loans went up and the mortgage payments ballooned, millions of buyers were forced to sell or foreclose, home prices plummeted, and… I suggest you watch The Big Short for anything else you might have missed.

But here’s the thing: post-2008 regulations on ARMs banned teaser rates, capped annual increases, and borrowers must now be informed in writing of any upcoming rate changes. Anyone who applies for an ARM today must prove they’ll be able to afford monthly payments above their initial rate, and it’s become much harder for subprime borrowers (those with lower credit scores) to get any kind of mortgage. (About 2% of mortgages issued in the first quarter of 2022 went to borrowers with credit scores below 620, according to the Federal Reserve Bank of New York, down from about 13% in the first three months of 2005.)

So, might an ARM work for you? If you know you might be in a home for the short-term (selling and moving in under 5 years) and you can cover the payments in the event that your loan resets, an ARM might work for you. A 5/1 ARM is a type of adjustable-rate loan that offers a discounted interest rate for five years before resetting annually. You’d end up paying about $15,600 less over five years — or $260 a month. Just remember that there is always a risk when the loan resets, and if you’re considering an ARM because you can’t afford the rate on a traditional mortgage (you never want your mortgage to be any more than around 30% of your income), then you should probably keep saving for a few more years before you buy. And if the housing market keeps dropping, that may be a good idea anyway. (And if you’re looking to boost your credit score quickly so you can get into your new home ASAP, here's what you need to know.)

Cryptocurrency or Cryptic Crime?

Have you been following the crypto roller coaster over the last few weeks? If so, I hope you’ve been watching it with a smug grin rather than white knuckles. Although Bitcoin made its debut in 2008, the crypto world has gained most of its ground over the last decade. But as crypto has gained a worldwide fan base, it’s simultaneously gained critics too, whose voices, according to the Washington Post, are getting louder. Critics of the unregulated currency feel they’ve recently been vindicated, and some voices are laser-focused on exposing fraud in the industry. Among them is Molly White — a 28 year-old software engineer who has taken the crypto world by storm. She documents, via bite-sized explanations on Twitter and her website, all the wrongdoing in the crypto world.

To White and her fellow crypto-skeptics, crypto company founders — and the venture capitalists backing them — are presiding over a massive unregulated attempt to defraud regular people of their money. "It’s not just someone losing some extra cash that they decided to take a risk on, but people losing the money that they need to live," she says. And plenty of people — including would-be investors — are listening.

My best advice with crypto right now? Don’t invest more than you can afford to lose. Diversify. And do your homework. Which should include this rundown on how to spot fraud from The Federal Trade Commission, and our Crypto 101 podcast.

Have a great week,

Jean