Debt Deal and Your Money

In Ch. 1 we discuss the personal financial planning process.  In that process the fifth step is to review your progress, reevaluate, and revise your plan.  This becomes even more important when the rules to the game change, and that’s what happened when Congress passed, and the President signed, the debt deal that raised the nation’s debt ceiling.  While not all of the details have been worked out yet, there are some areas that you may want to keep an eye on.  An article in Smartmoney.com, How the Debt Deal May Affect You, examines some of these changes and some areas that may require a reevaluation and a revision of your plan

Let’s look at municipal bonds, which we discuss in Ch. 14.  How might they  be impacted by the federal spending cuts?   Just as the federal spending shrinks, so will aid to the states and local governments, which may in turn cause their debt to be downgraded.  How should investors react?  They should make sure their investments are diversified, because as we learn in Principle 8: Risk and Return Go Hand in Hand.   In Ch. 1, and discussed later in Ch. 11, diversification can reduce risk without affecting your expected return.  In this case, the diversification would mean turning some of your municipal bonds into bonds that are less dependent upon federal aid – that would mean less investment in state general obligation bonds and more investment in revenue bonds discussed in Ch 14.

Student loans, which we examine in Ch. 7, are another item impacted by the new law.  With respect to student loans, there is good news and not so good news.  The good news is that undergraduates enrolled at least half-time qualify for subsidized federal student loans.  The not so good news is that after July 1, 2012, subsidized federal student loans will no longer be available to grad students.

Discussion Questions:

  1. Other areas examined in this article are mortgages and housing, how might these areas be impacted by the debt deal?
  2. What changes in health care did the article say might take place?
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