Structured Settlements - Have Your Cake and Eat it Too

Is there really such a thing as a good problem? Some might say so. My aunt comes to mind. Back in the 1980s she won two million dollars in the lottery. How could that be any kind of problem you ask. Well, when the lottery people asked her if she wanted the money all at once or in monthly payments over 20 years, she took the payments, and regretted it right up until she got the last one.

I don't know exactly how much she got every month but she claimed it wasn't enough to live on so she had to keep her job. In hindsight, what she would have rather done was take the lump sum, which would have been less than the whole two million, and invested it. That way, by wisely placing part or all of the money in a high-yield investment, she could have had monthly income that far exceeded what the lottery folks were paying each month. So much for hindsight.

What she ended up learning, though it was too late to be of any use, is that she could have sold her winnings and received a lump sum of cash. How does this work? Well, there are companies and investors who are willing to buy income streams or payments. Monthly lottery payments qualify for this as do private mortgage note payments, annuity payments, structured settlements, royalties and several other types of steady payment streams. What happens is, based on the type of payments one might be receiving, an investor or company dealing in purchasing such assets will examine the type of payment a person is getting and make them an offer on the remaining payments.

Just like any state lottery commission, investors don't pay the full face value for these payments. Sometimes the reasons may not seem logical but the simple answer is, a lump sum today, even when discounted, is more valuable than the promise of a stream of future payments. I'm reminded of the old saying, "a bird in the hand..."

But many of the companies offering such a service are quite creative. They are able to offer more than one way to receive money up front and at the same time, still leave the seller with some of their payments. There are arrangements where such a company would pay cash up front in exchange for a portion of the payment. It might work like this: Sally is receiving payments of $600 monthly for 10 years on an accident settlement. She wants cash today. In exchange for a cash payment now, she evenly splits her monthly payment with an investor. So, she gets a lump sum of cash today and continues to receive $300 for the next ten years.

Another possibility would be that someone holding an annuity or receiving payments on a private mortgage note might assign his or her rights to receive, say, the next five years of payments in exchange for a lump sum today. After the five years has passed, the individual would revert to collecting his monthly payments.

There are many ways to structure such transactions depending on the needs of both the asset holder and the asset investor. Often the asset holder can have the best of both worlds. That is, they get to receive a lump sum up front while preserving the right to resume collecting payments in the future or receiving partial payments for the remainder of the term - like having your cake and eating it too.

By Jared Emin

The Entitlement Epidemic - Eroding Our Financial Future?

Today, it seems all too common that young people have very little appreciation for the concept of "work ethic". The implications of this as it relates to the near crisis financial statistics in North America are huge.

Jobs are prolific and as a result, many young people don't seem to understand commitment or work ethic. They expect to have everything they want, when they want it; and when they don't they just move on, leaving a wake of hard-working, committed business owners and managers behind. They will often not move on quietly either. If they expect something they don't receive, they can be verbally abusive to the innocent shopkeeper behind the counter.

Their expectations are so high they become impatient or don't even see the value in what they're doing or learning at the time. Their respect for work and for training is negligible.

What I've discovered from sharing my story with my peers about a young employee I had is that everyone has at least one version and often multiple versions of the same story.

In North America, our youth are still looking for job security and high pay, with complete flexibility and lots of time off. They are still telling themselves they will save a lot of money so they can buy a house in 5 years' time and save for retirement after that. They are completely closed-minded to the idea that you can learn how to buy real estate and create income in other ways besides working at whatever job seems to offer the highest pay and most rewards at the time.

Personal debt levels are at record highs and savings rates at record lows. The way out of this mess is not to cut back spending and save more money. The answer is to learn how to earn more money and to re-ignite the entrepreneurial spirit in young people like it has been for people in overseas countries - namely China and India.

Yes, today's youth are facing an uncertain future, as the largest and most powerful generation in the world, the baby boomers, will be retiring. And yes, there are organizations that support and recognize the youth who will become our future leaders. There are also some amazing young people who get inspired by a cause and commit their time, and their piggy bank to do what many adults don't even think of doing. The question is, will enough of our youth be ready and prepared to take on the challenges their generation faces? Is there enough training and support to raise financially independent, hard-working, inspired, future leaders?

The young person in my story decided she wasn't getting the training she wanted despite being paid to review a very expensive CD program from one of the top professionals in her field. After less than 2 months, she decided she wanted more security and to be involved personally with the company's consultants. I'm not sure what she expected besides her regular paycheck but she certainly wasn't going to be the junior person in a start-up organization and have personal access to $1000-an-hour consultants. She decided to look for work while continuing to accept the payment for her training then gave 2 days' notice and expected to be paid the day she left - hmm.

I guess I should be so lucky; my brother owns a catering company and has shown up many times for work to find that the person who was supposed to start early on food preparation for that day just didn't show up because they were too tired from being out late the night before.

There are also the poor employers of young people who don't service the clients because a) it's their break time or b) the request by the customer is something they don't want to do or c) it was slightly outside the normal course of business.

The bottom line is the entitlement mentality is becoming an epidemic. And that's a problem because this Generation Y, as its known, expects to have all the benefits the current generation has worked hard for without the commitment to make it happen. There are too few young leaders who take up the challenges of our society. Those that do step up need support, and unfortunately this means they will have to work alongside the growing number of youth who jump from job to job and pay for things on credit they don't have money for, and then look to parents or the government to bail them out when they can't make things work for themselves.

One of my favorite success stories is a young woman who opted to work as consultant, rather than settling for an entry-level job right out of school. Her income jumped from $1500 per month to $7500 in 4 months because she followed her passion. Another young woman I know (still in high school) is very interested in fashion. Rather than take a retail job she found a way to open her own "shop" in the back of another store.

There are examples all around of young people who are making a difference - just a few more of them who aren't. It's time for business owners, teachers, parents, and other would-be "mentors" to stop bailing out our young people. "Generation Y" needs to take responsibility for their actions and to be committed to the decisions they make. We have to help more of them learn to earn a living for themselves so they understand the commitment and responsibility the people who employ them take on when they hire them.

We have to help them understand that when they learn these skills they actually can have the securities and freedoms they want when they want them. We have to help them learn how to earn so they can be part of the change we so desperately need in North America to maintain our independence and financial freedoms.

By Tracy Piercy