What the President’s Address Means for Your Wallet

In his State of the Union address Tuesday, the president laid out new reforms, programs and initiatives aimed at reviving the middle class and igniting the economic  recovery.

Calling a growing economy the “North Star” that guides the nation in job creation, Obama asked Congress to raise the minimal wage, change higher education legislation and he unveiled a job creation program to get more Americans back to work and repair the nation’s crumbling infrastructure.

The president also urged Congress to reach a bipartisan budget to avoid the deep cuts sequestration that automatically go into effect March 1.

At nearly 60 minutes, it can be hard to digest all the new proposals and reforms outlined in the address and how they will impact your budget and personal finances. Here’s a breakdown of what to expect and how to plan accordingly:

Raising the Federal Minimum Wage

Obama called on Congress to raise the nationwide minimum wage to $9 per hour from $7.25, which he said will allow these workers to live above the poverty line, save more and increase their spending power.

“Even with the tax relief we've put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That's wrong,” he said. “Tonight, let's declare that, in the wealthiest nation on Earth, no one who works full time should have to live in poverty.” He added that 19 states have already bumped wages above the federal minimum.

Proponents of the increase argue that giving workers more pay will boost the economy overall since workers will have more money to spend. After all, consumer spending makes up nearly three-quarters of the country’s GDP.

MoneyAnswers.com’s Jordan Goodman, and author of Master Your Debt, said Obama emphasized how the increase would help consumers, but it could hurt hiring and potentially raise prices. “That extra $1.75 has to come from somewhere,” he says. “In theory, minimum-wage workers would make more, but many are barely scraping by.”

Matt Jensen, research associate at The American Enterprise Institute, echoes Goodman’s concerns, noting that basic economics dictates that when raising the cost of a product, it is less likely to be consumed.

“If you increase the cost of low-skilled labor for business, it’s less likely to be consumed,” he says. “This is most damaging for the young, which has been one of Obama’s main constituencies. It’s distributing money from future generations to current generations and the job market will just be tighter.”

Jobs and Infrastructure

Obama also introduced “Fix it First”, a program to put Americans to work on the country’s most urgent infrastructure needs, including 70,000 deficient bridges across the country.

“And to make sure taxpayers don't shoulder the whole burden, I'm also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods; modern pipelines to withstand a storm; modern schools worthy of our children,” he said.

Many presidents have introduced similar programs in recent history to varying degrees of success, but Jensen worries that the plan subsidizes programs and will create larger costs for future generations to pay off.

Goodman says the country’s infrastructure is in need of repair, but he doesn’t see the plan moving forward with the automatic spending cuts just weeks away.

“There is no appetite from Republicans in control of the House to have any new infrastructure or stimulus spending. Obama knows that won’t get anywhere.”

Refinancing Legislation

With interest rates remaining at near-record lows, the president urged Congress to pass legislation that eases refinancing requirements.

“Right now, there's a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today's rates,” he said, adding that the legislation should not be a partisan issue. Refinancing to reduce mortgage payments keeps more money in homeowner’s budgets and allows them to spend more.

The Responsible Homeowners’ Refinancing Act proposed by Sen. Robert Menendez, (D-NJ), and Sen. Barbara Boxer, (D-NJ), would streamline the refinancing process, waive loan-to-value ratios for existing well-performing loans and eliminate up-front fees and appraisal costs that often weigh down the process.

The bill would also allows homeowners with government-sponsored enterprise (GSE) mortgages, such as Fannie Mae and Freddie Mac,  the same access to simple and low-cost refinances, no matter what the level of equity they have in their home, according to a release from Sen. Menedez’s office.

The bill also eliminates up-front fees on refinances as well as appraisal costs for borrowers and according to the release, the bill will pay for itself through “reduced default rates on GSE loans.”

“Your payment would  go down if you went from five percent to four percent you are starting a new mortgage. Starting the clock all over again, but your payment will be less, give you more cash that you can spend on other things,” Goodman says.

College Scorecard and the Cost of Higher Education

The president also acknowledged the crippling debt students face after graduating on top of the struggle to find work in one of the tightest job markets in recent memory. On Wednesday the administration released an interactive scorecard  on its Website that students and families can use to compare  schools and find out “where you can get the most bang for your educational buck.”

“Skyrocketing costs price too many young people out of a higher education or saddle them with unsustainable debt...  But taxpayers can't keep on subsidizing higher and higher and higher costs for higher education. Colleges must do their part to keep costs down, and it's our job to make sure that they do. So, tonight, I ask Congress to change the Higher Education Act so that affordability and value are included in determining which colleges receive certain types of federal aid,” he said.

Goodman says the scorecard will educate students about the cost of their higher education and pressure colleges to keep costs under control.

“People have enormous debts and don’t have the income to pay it back,” he says. “The Department of Education will put the track records of colleges’ salary levels for graduates coming out of them. “This makes you more aware of what you are getting into.”

Jensen agreed, adding “mandating more information be available in the marketplace will be beneficial to consumers.”