4 steps to protect a windfall

By Marcia Passos Duffy • Bankrate.com

It may seem like a problem you'd love to have: Deciding what to do with a sudden inheritance from a long lost relative or a big win in the lottery.

But, as the sad tales of some lottery winners clearly demonstrate, sudden wealth could quickly spiral into a living nightmare -- with the loss of not only wealth, but also family, friends and even health.
If you're lucky enough to receive a windfall, understanding the psychology of sudden wealth can help you take the right steps to protect your money and lifestyle.
"People think windfalls are about money. But it's really all about change and transition ... and people need time to adjust," says Susan Bradley, a CFP who is the founder of the Sudden Money Institute in Palm Beach Gardens, Fla., and author of "Sudden Money: Managing a Financial Windfall."

Handling a windfall

1. Money moratorium.
2. Emotional inventory.
3. Set aside play money.
4. Review after one year.

Money shock isn't necessarily limited to those who get millions suddenly deposited into their bank account.
In fact, unexpectedly getting as little as three months' worth of salary in one lump sum can set off a chain reaction of panic, guilt and fear for some, according to psychologist Dennis Pearne, co-author of "The Challenges of Wealth" and a wealth counselor and consultant based in Framingham, Mass.
"A person making $60,000 a year ... who suddenly has $15,000 plopped in their lap" can go into money shock, Pearne says.
Following are four steps that can help you adjust to a new financial reality after a windfall.

Step 1: Money moratorium

The shock of a sudden windfall can set off a litany of irrational behaviors, such as giving all the money away, becoming a recluse, spending the money lavishly, and hiding or hoarding the money. Other hallmarks of money shock include engaging in self-destructive and expensive activities such as drinking, using drugs, gambling and sex addiction, says Pearne.
Bradley says such problems stem from the fact that most people don't understand the limits of their new wealth, especially if the windfall is relatively large.
"(The money) can seem infinite ... people often get an 'I'm invincible, anything is possible' feeling," she says.
These powerful emotions may create trouble for those with new wealth.
To counteract these emotions, it's important to allow time to adjust to the new wealth circumstances that follow a windfall. Pearne and Bradley recommend that people who receive a windfall do nothing with their money for at least a few months, if not an entire year.
That means saying "no" to gifts for family or friends, new investments, lavish cars or house purchases, and trips around the world. It's not even wise to retire.
"Park your money someplace safe where it won't depreciate and take a money holiday," Pearne says. He recommends CDs as one possible home for the new cash.
Bradley says the money moratorium acts as a timeout that allows you to come to grips with your new financial situation, set the stage for better decision-making and get your emotions under control.
"Emotionally, a windfall results in a stress reaction," Bradley says. "When people are in that state, they are using their reptilian brain and are prone to react rather than respond."
During the money moratorium, there is a lot of work that needs to be done. While the money is safely parked in CDs for six months to a year, start to assemble a team of advisers you trust, including a fee-based financial planner, an estate attorney, a money manager who has experience with high net worth individuals and an accountant, Bradley says.
"This is a time to discover, organize and explore," Bradley says.

Step 2: Emotional inventory

Sudden wealth can lead to what psychologist Pearne calls "identity dissolution." All the parameters set up in life that define identity are suddenly gone.
After an especially large windfall, traditional work may become an option rather than a necessity; all the years of school training to get to a skill level are no longer necessary for survival.

Read more: http://www.bankrate.com/finance/personal-finance/4-steps-to-profit-from-a-windfall-1.aspx#ixzz30nLTLwoj
Follow us: @Bankrate on Twitter | Bankrate on Facebook

The other student debt crisis

Kelley Holland | @KKelleyHolland

Wednesday, 30 Apr 2014 | 8:00 AM ET

CNBC.com

What's really behind the student debt crisis 

 

Monday, 28 Apr 2014 | 4:00 PM ET

College students are struggling with debt, but graduate student debt is rising at least as rapidly. CNBC's Kelley Holland explains why, and what students can do.

When Nicole Armbrust decided to earn a master's degree in social work, she wasn't particularly worried about the cost.
\
"I had always heard from faculty, staff, students that if you wanted to go to grad school, there's so much funding available that you wouldn't have to take out as many loans as undergrad," she recalled.
Wrong. The aid was not available, so Armbrust wound up taking out both a federal Stafford loan and a $30,000 private loan. She earned her degree, but salaries in her field are relatively low. So Armbrust has struggled to keep up with loan payments—not always successfully—even though she has one full-time job and two part-time ones. Her private lender offers no income-based repayment options, she said.
"I really feel like I will die, despite how hard I work, with my loans," she said.
 

Student debt is straining millions of students' finances, and it is a hot-button topic on college campuses across the country. But if you look at who is really borrowing heavily, it's the graduate students.
Graduate students made up less than 18 percent of all the students receiving federal loans in the academic year 2012-2013, but they received about 40 percent of the federal money, according to an analysis of Department of Education data. And a study released in March by the New America Foundation found that for the roughly 64 percent of graduate students who take out loans, the median debt for their undergraduate and graduate education was over $57,000 in 2012, up from just over $40,000 in 2004.

"The people who are borrowing are borrowing everything," said Jason Delisle, director of the federal education budget project at the New America Foundation and the author of the recent study. "If you're going to borrow for graduate school, it's generally not people who are borrowing just to fill in the gaps."
The growth in graduate student borrowing has many roots. First, overall graduate student debt has increased as graduate school enrollment has risen. Between 2002 and 2012, applications to graduate school grew at an annual average rate of 4.5 percent, according to the Council of Graduate Schools. The growth was 3.8 percent at public universities and colleges, and 6.1 percent at private, nonprofit ones.

Tuition has been rising as well, though it varies widely depending on what a student is studying. Average tuition and fees at several top-tier business schools were close to $59,000 for the 2012-2013 school year, according to a U.S. News & World Report survey, up more than $6,000 from 2010.
Debra Stewart, president of the Council of Graduate Schools, said that on average, graduate school tuition increased 14 percent from 2004 to 2012, but that was far less than the 25 percent increase in undergraduate tuition over the same period.

Still, even a 14 percent increase over eight years can bite—especially when there is less aid available with tuition. Consider, for example, what is happening with masters degree programs in education.
Both in education and in areas such as social work and public health, students often come from public sector jobs, and many of those public sector employers provided tuition assistance in the past. But government budget cuts have slashed tuition assistance programs, as Armbrust found, so borrowing by students in these fields has skyrocketed. Stewart said borrowing increased 38 percent from 2004 to 2012 for students seeking a master's in education.
The good news is that the federal government, far and away the biggest provider of graduate student loans, offers various kinds of help with graduate student debt. For example, students who graduate and have low initial salaries can qualify for income-based repayment plans. If their income never rises above the federal ceiling, they can stay in the program for 25 years, at which point their loan will be forgiven—though they may wind up paying more total interest over that time. (If they start earning more, they can pay off their loans earlier.)

Students who graduate and go into public service have other options. For example, if they make 120 complete and timely income-based monthly payments, they may have their federal loan balances forgiven after 10 years.

Generations of student loan debt

 

CNBC's Eamon Javers reports student loan debt is building, becoming a lifetime and in some cases a generational burden.

Some critics say those programs are actually contributing to the rise in graduate student debt. Partly that's because people making income-based payments may take longer to pay off their loan, and wind up paying more in interest. But mainly, these critics say, it's because the federal loan assistance programs create the wrong incentives for students.

"Essentially anybody can go to graduate school, no money down," said Delisle. Because the federal government offers basically unlimited borrowing for graduate school, even for related living expenses, students can take on large amounts of debt—even for degrees that may never lead to salaries that will make loan repayment easily manageable.

But others say the repayment programs are a useful tool for students with low starting salaries to get on their feet. Charles Pruett, assistant dean for financial aid at Georgetown University Law Center, says students who graduate from Georgetown may land clerkships that are prestigious but low paying. Income based loan payments let them have the experience, and they can then repay their loans more quickly if they move into more lucrative work.

Pruett argues that much of the increase in graduate student debt may be a product of the financial crisis and the recession. "People lost their jobs and went to graduate school," he said. "They didn't have money, and it's one of the few times in your life that you are able to borrow money to live."
Debra Mollen, now an associate professor at Texas Woman's University, doesn't regret borrowing to pay for her master's degree in counseling psychology. She took out roughly $20,000 in loans to pay for her master's, and received full funding from her university for her doctorate. Now 42, she says she finished paying off her loans a few years ago. "My professional life is very fulfilling and I'm pleased with the way my career has been going," she said.

Certainly, data on earnings make graduate school look appealing. Unemployment rates decrease with every level of schooling, according to Bureau of Labor Statistics data, and median weekly earnings for those with master's degrees, professional degrees, or doctorates are more than double those of high school graduates.
Still, while borrowing may be the move that makes more education possible, it almost never comes without a cost. And right now, graduate students are learning the hard way how high those costs can be.

—By Kelley Holland, Special to CNBC.

Be prepared for lower returns, says Jack Bogle

Drew Sandholm | @drewsandholm

Tuesday, 22 Apr 2014 | 3:19 PM ET

CNBC.com

 

 

    

Vanguard founder Jack Bogle, discusses long-term investing in equities and shares is thoughts on high-frequency trading.

 

As the Dow Jones industrial average and S&P 500 index flirted with all-time highs on Tuesday, investing legend Jack Bogle told CNBC stocks are a little expensive at current levels—but investors should brace for lower returns.

"The market is probably a little on the high side of fair value, but not enough to make me take an investment action," said the founder of the Vanguard Group, which manages about $2.5 trillion among its various funds, on "Closing Bell."

Bogle said the bulk of first-quarter earnings reported have, so far, actually been valued at 20 times earnings.

"That's a little above the norm, but over the next, say 10 years, or even longer, dividend yields are going to contribute 2 percent to the return and they'll probably grow at the rate of earnings growth, which could be as high as 5 [percent]. So I think something like a 7 percent future return is going to be what people are going to have to accept," Bogle said, adding he expects a long-term return of 9 percent, given the long-term dividend yield is 4.5 percent.

"And the long-term return, of course ... is 9 [percent] because the long-term dividend yield was not 2 percent, but 4.5 percent. So we have to—dividends are very important in the equation as we look at it and we just have to be prepared for lower returns at historical norms."

—By CNBC's Drew Sandholm.

Why even $1M may not be enough for retirement

Tuesday, 22 Apr 2014 | 2:16 PM ET

USA Today

 

You've been saving like a miser to get ready for retirement. You've pinched pennies, kept that last car for what seems like an eternity. And now you've banked a cool $1 million for your retirement years.
Think you're set?
Well, you very well might be. Then again, you still might be short.
 

Getty Images
 

"The good news is there are more millionaires," says Richard G. Dragotta, at LPL Financial in Paramus, N.J. "Over 9 million people in the U.S. have $1 million or more." But, Dragotta says, $1 million might not mean you're wealthy: The new $1 million may be $2 million.
"Thirty years ago, $1 million was a huge amount of money," says Haitham "Hutch" Ashoo, CEO of Pillar Wealth Management, in Walnut Creek, Calif. "Today, given today's lifestyles and costs, it isn't so much money."

Why not? "It translates into $40,000 to $50,000 (annually) in sustainable revenue," says Joe Heider, regional managing principal for Rehmann Financial Group in Westlake, Ohio. "That is not that much money on an annual basis."

Heider says that 10 to 12 years ago, when people earned a lot more on their investments, $1 million could generate $70,000 to $80,000 a year in retirement income. But with interest rates as low as they are, that's not really feasible.

Still, that's not to say that no one could live on savings of $1 million. Not everyone will need that kind of cash in their retirement kitty, financial planners say. It all depends on your lifestyle—the one you're living now, and the one you want to live in retirement. It also depends on your investment returns, taxes and inflation.

"I think it depends on how much money you're going to spend," says Tim Courtney, chief investment officer at Exencial Wealth Advisors in Oklahoma City. "A million is not like $1 million 20 years ago or 30 years ago. If you're wanting to spend $50,000 a year or less from your investment portfolio, $1 million will probably get it done for you.
 

Saving for retirement: ETFs vs. mutual funds 

"Mad Money" host Jim Cramer reveals common mistakes investors make with ETFs and mutual funds. When preparing for retirement, he prefers a cheap, low-cost index fund that mirrors the market as a whole.

"If you want more than that, $1 million is not going to provide that for you," he says. Otherwise, you run the risk of depleting your savings before you die.
"Everything is relative," says Clarence Kehoe, executive partner in the accounting firm Anchin, Block & Anchin in New York City. "For some people, I would think $1 million would be more than enough. For other people, I can tell you some of these clients spend more than $1 million in a year. It depends on the person, their lifestyle and what they are used to."
Kehoe says hopefully, most of your bigger expenses are done with in retirement—children's college tuition and your mortgage, for example.

"If you contained those bigger expense, things are a little bit easier," he says. "But you have to realize there are new types of expenses. You have increased medical expenses, and you have all this free time. There's the cost of hobbies, the cost of traveling. That could be very expensive."
Pillar Wealth Management's Ashoo says even if you have $3 million to $10 million, but you want to jet all over the world, you haven't saved enough. "If a jet is not what you're after, if all you are looking for is a motor home to travel, then that's doable. It's about you and what you are trying to achieve. Do you have the right expectations?"
One mistake that people often make is that they assume that they will spend less in retirement, says Heider. "The reality is when someone retires in good health, they are more likely than not to spend more money," he says.
Heider says when people are not working, they have many more hours of time on their hands, to go to lunch, golf, shop and ski. Also, he says, "Most people have postponed dreams during working years, whether it's going to Europe, buying a second home or buying a motor home. They think they have saved enough, but they get into retirement and say, 'I wanted to do all these things, but I'm spending a lot more money.' "
Whether people have saved $1 million or $3 million, the individuals need to be realistic going into retirement, Heider says. "If they retire and realize they don't have enough monthly to sustain themselves during retirement, do they cut back on their activities, scale back?" he asks. Perhaps they could downsize their home or work part time.
"I've seen individuals who do something they like," he says. "They may work at a golf course so they can play golf for free. You just need to make adjustments in retirement."

Most of all, retirees need to have a financial plan and a cash-flow plan to see what they are going to need in their retirement years. "Retirement is all about cash flow," Dragotta says. "It's about the distribution of your wealth back to you. It's a constant battle, cash, vs. longevity, inflation and volatility. Depending on what your needs are, $1 million probably isn't enough.
"The days of pensions are long gone," he says. "If you have one you are in a better scenario. But most Americans aren't in that position. They have whatever they have accumulated. Even if it's $1 million. Add Uncle Sam's Social Security, that probably isn't enough."
Dan Cuprill, president Matson & Cuprill in Cincinnati, says if someone comes to him with $1 million for retirement, he can make it work.

"I think $1 million for most people is still adequate," he says. "There are parts of the country where it's more expensive. But $1 million is adequate for most people."
Cuprill says there are some exceptions, such as when people retire with big mortgages. "That's just poor planning.."
Still, $1 million is a good starting point. "At the end of the day, if you want to have a quality retirement, to do what you want to do, I think you need at least $1 million," says Michael Wall, president and founder of Wall Financial Group, in Altoona, Pa., and Palm Beach Gardens, Fla.
"A lot of my clients are 50-plus," he says. "They are still from a world where they have a small pension. Some have real estate. Then there's Social Security. A lot clients are in a place where they have lived below their means. They can live on a million.

"Not everyone will have $1 million," he says. "They will not have the ability to have as many choices, to do and go and buy and travel. I definitely would suggest that clients shoot to have at least that much. You are talking about 30 or 40 years of unemployment, called retirement."
—By Rodney Brooks, USA Today

Is your child college bound? How do you pay for it?

Sharon Epperson | @sharon_epperson

Thursday, 17 Apr 2014 | 8:33 AM ET

CNBC.com

Your child is off to college. Now it's time to pay up

It's college acceptance season and many parents will soon start getting bills for the fall semester. So after saving for your child's education over the years, what is the best way to withdraw funds from a 529 college savings plan? CNBC's Sharon Epperson takes you step by step.

 

Millions of college-bound high school seniors are receiving college acceptance letters and financial aid award packages this month. Now it's decision time—not only for the student, but for Mom and Dad too—forcing families to grapple with how to pay for it all.

Many parents may be overwhelmed by the cost of college, which has ballooned since they were undergrads. A Sallie Mae report found families spent an average of $21,178 on total college costs last year. But there's no need to panic. The good news is, financial advisors say, you don't have to pay for the whole thing. There are various funding options for college.




Most families pay for nearly a third of college costs with "free money"—scholarships and grants—according to Sallie Mae. More than a quarter—27 percent—of the total college tab is covered by loans. Another 27 percent comes from parents' income and savings.

A plain-vanilla savings account is often their top choice for savings, though 529 college savings plans offer more tax breaks.
"These accounts are built to give people tax benefits in saving for college and people who aren't using them are missing out on those tax benefits and potentially have less money for college when it comes time to pay for that," said Stuart Ritter, a certified financial planner with T. Rowe Price.

Why we're not saving for college

 

A new study found only half of parents with children under 18 years old are saving for college, and as CNBC's Sharon Epperson reports, most of them say it's because they don't have the money.

With 529 plans, funds can be withdrawn federally "tax free" to pay for "qualified education expenses," including tuition and fees, room and board, books, supplies and equipment. But how much should parents withdraw each year?


Savingforcollege.com founder Joseph Hurley said withdrawing as much as you need as quickly as possible is the best strategy to ensure you lock in your tax-free gains.
Families may be able to take advantage of other tax breaks too. The "American Opportunity Tax Credit" offers a tax credit of up to $2,500 on the first $4,000 of education expenses. Parents with 529 plans may want to wait to withdraw those funds, some financial experts say, so they don't miss out on these tax advantages.

Read More5 costly and common college 529 plan mistakes


Parents "should not take that $4,000 from their 529 plan," Hurley warned. "They should be taking that (money) from other sources—out of pocket, or loans. You cannot double dip and take that tax credit and take tax-free distributions from your 529 plan for those same expenses."
Many families may also need to turn to loans to pay at least a portion of the college bill. If your child qualifies for the federal Stafford loan, Hurley said, that's a "good deal," with zero percent interest while in college and a very low interest rate after graduation.

—By CNBC's Sharon Epperson.

Savings showdown: Retirement for you vs. college for kids

Allison Linn | @allisondlinn

Thursday, 10 Apr 2014 | 7:54 AM ET

CNBC.com

Why we're not saving for college

 

Thursday, 10 Apr 2014 | 12:01 AM ET

A new study found only half of parents with children under 18 years old are saving for college, and as CNBC's Sharon Epperson reports, most of them say it's because they don't have the money.

Bad news, kids. When it comes to your parents' savings priorities, funding their golden years is winning over financing your college years.
It's not that they don't want to pay for their kids' higher education, experts say. It's more that they are overwhelmed by the rising cost of a college education and concerned about having enough money for their own retirement.
A new survey of Americans' saving habits finds that 55 percent of parents with kids under age 18 are saving for retirement, compared with 51 percent of families who are putting aside money for their children's college education. But those parents are putting significantly more money into retirement than college savings, according to the latest How America Saves for College survey, released Thursday by student loan giant Sallie Mae.
The survey found that on average, 53 percent of a family's savings are allocated toward retirement, compared with an average of just 10 percent for college.


The survey of about 2,000 parents included families of all income levels, and had a margin of error of 2.5 percentage points. It was conducted by Ipsos on behalf of Sallie Mae.
The study found that 89 percent agree that college is an investment in their child's future, and there's plenty of research showing that, in general, college graduates are better off economically.

Still, experts say many parents seem to be overwhelmed by the cost of college, which has likely ballooned since their undergrad days. A separate Sallie Mae study, How America Pays for College, found that families spent an average of $21,178 on college costs in the 2012-2013 academic year, and it was funded by a mix of scholarships, grants, loans and savings.
"The price tag is often daunting to families," said Sarah Ducich, senior vice president for public policy with Sallie Mae. "When we look at families that aren't saving for college, their predominant feeling about it is they're frustrated, they're overwhelmed and they're angry."

Ricky Rhodes | NBC News

 

Cathy Tiffany at work at Salon Lofts.

"When we look at families that aren’t saving for college, their predominant feeling about it is they’re frustrated, they’re overwhelmed and they’re angry." -Sarah Ducich, senior vice president for public policy with Sallie Mae

The researchers also found that the main reason parents aren't saving is they just don't have enough money.
Cathy Tiffany, 44, is one of those many parents caught between the need to save for her own retirement and the strong belief that her 16-year-old daughter will need a good college education to succeed in life.
"It is important to me that she gets a college degree, event though I've done very well without one," said Tiffany, who works as a hair stylist and lives in Columbus, Ohio. "That's not typical."
Tiffany is also rebuilding her financial life after going through a divorce and a bankruptcy about a decade ago. Now remarried, she would like to have about $500,000 saved for retirement. She has about $10,000 in her retirement account, about the same amount she has in her daughter's college savings account.
Tiffany said she tries to put about $200 a month in the college fund. In an ideal world, she'd like to be putting as much as $2,500 a month in her retirement account, but lately she's only been able to afford to put in about $500 each month.

Tiffany also is hoping that her daughter, a volleyball player, will get some scholarship money.
She'd like to keep her daughter's student loan debt down to about $10,000 a year, but she's tried to be realistic about the fact that the teen will probably end up footing some of her college bill.
Read MoreSeesaw economy: Nearly 1 in 3 dipped into poverty

"I just made it very clear to her that there is no financial adviser on the planet that would tell me to save for her college instead of my retirement," she said.

Ricky Rhodes | NBC News

 

Cathy Tiffany talks with daughter Autumn Selby, 16, and husband Gary Tiffany in their kitchen.

Many personal finance experts say that it's smart for parents to prioritize retirement over college savings. That's because you need more money for retirement than you do for college tuition, and you can't borrow for retirement like you can for college.

Many Americans are also woefully unprepared for retirement. An analysis of 2010 data by Boston College's Center for Retirement Research found that the median 401(k) and IRA account balance for households who are 55 to 64 years old was $120,000—far below what retirees might need to live for decades in retirement.
Financial advisers also have typically said that taking on some college debt is good because college grads are likely to make more money than their peers who don't go to college, so there's a return on that investment. As student loan debt has skyrocketed, however, there has been some worry that kids are taking on too much debt and won't be able to pay it off.
Experts also say it's easier to save for retirement, because many employers offer a simple way to funnel money from your paycheck to a 401(k), and there are additional tax-friendly options like IRAs.

The high cost of 'not' going to college

The cost of going to college may never have seemed more daunting - but the payout may never have been more rewarding according to a new report from the Pew Research Center. But as CNBC's Allison Linn reports, if you're thinking about taking out a student loan to pay for college, you better plan well.

"We have a lot of mechanisms in place to save for retirement, and less so for college," Ducich said.
Read MoreStay-at-home moms growing among young and poor

Sallie Mae's research found that the most common way parents are saving for college is through general savings, followed by more structured options like a 529 plan. That gives them more flexibility to use the money they have set aside for college if they need it for another reason, such as a health emergency or to cover the mortgage.

"They say that they're (setting) it aside for college and they're planning to use it for college, but it's there if they need it," she said.

—By CNBC's Allison Linn.

The Western capitalist system is in danger of becoming not fit for purpose

Professor Moorad Choudhry

Tuesday, 1 Apr 2014 | 2:18 AM ET

CNBC.com

53

COMMENTSJoin the Discussion

Remember the Redskins? I don't mean the American Football team, I mean the English skinhead band from the mid-80s which sang some glorious northern-soul style agitprop songs, culminating in the single "Bring It Down (This Insane Thing)!"

I first saw them live in 1984…who would have thought that when I heard that song's lyrics, 30 years later it would have turned out that yes indeed, the system is beginning to look like a very insane thing – just not for the reasons my optimistic but sadly naïve heroes from York thought.

Dr David James Killock| Flickr Open | Getty Images

How many times have we heard that the bank bonus system is needed in order for banks to attract "the best", that pay levels are where they are because of the need to retain the best people? If the best could manage the debacle of 2008, I'd hate to see what a team of mediocre executives could do.

But that's the great myth isn't it? Because mediocre, or downright incompetent, is what we get a lot of the time.That might not be down to the bonus system, but it's certainly down to the excessive short-term culture that grips the stock market. How much time and energy of senior executives in banks and fund management institutions is spent on the quarterly analyst report? Quarterly! For a concept that is supposed to be rooted in long term prospects, it's the ultimate paradox that share prices are scrutinized on daily movements and quarterly reports.

And this heavy emphasis on the short term makes corporate executives risk averse and uncreative. It becomes all about the day-to-day share price, rather than planning over a long term time horizon. And these same corporate executives – in a great many industries, not just banking and finance – are overseen by theoretically independent directors who often are not experienced, let alone experts, in the business that they are supposedly steering towards sustained success.

Oh for a Board that did away with the quarterly briefing! But then why rock the boat? Once one attains the glorious heights of the Board, whether as executive or non-executive director, the remuneration is bountiful and as long as there is no big mishap the individual can look forward to big rewards. And where has that got us today? Senior managers in so many companies who are, apart from being good at office politics, really more administrators and bureaucrats rather than entrepreneurs. The "corporate man" (or occasionally woman) who is beneath the surface a cardboard cut-out automaton, terrible at providing genuine leadership and with all the charisma of a local council committee chairman, but good at saying the right thing to the right person at the right time. Ring a bell? How many of us have met such people occupying senior positions?

It's a pity. Because this really is a big deal. Western economies will not be able to compete, either on an absolute level or on a relative productivity basis, if the system carries on like this. Just as the public sector is being overwhelmed by the welfare state, so the private sector will be overwhelmed by the short-term culture of the modern equity market.

Bring it down! Not in a revolutionary socialist sense, but in a genuine free-market, entrepreneurial sense where it isn't the company man who ends up calling the shots, but the person who possesses the flair and vision both to lead and inspire.

Professor Moorad Choudhry is at the Department of Mathematical Sciences, Brunel University and author of The Principles of Banking (John Wiley & Sons 2012).