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Array of Financial Products is Dizzying

Timeline of financial products since the 1940sRather than put his money in a bank, my cousin, who’s in his mid-40s, makes loans in $25 increments on a peer-to-peer lending website.  He decides on the amount of risk he’s willing to take on – and the riskier the borrowers he chooses, the more he earns on his “savings.”

My cousin’s $25 investments illustrate how much our consumer finance market has evolved over several decades. We all embrace the convenience. Car loans are a more affordable way to buy a vehicle, Internet banking lets homebuyers get several mortgage quotes at once, and paying with cell phones is much easier than paying with cash or even credit cards.

But all this innovation has a downside. One example is the change from installment credit with fixed payments in the early 1960s to revolving credit, which lets consumers choose to pay a small required minimum – and increases the high credit-card interest that undisciplined borrowers pay. A recent and egregious innovation is companies that purchased lawsuit settlements from victims of lead paint poisoning for a fraction of their value.  Both innovations offer convenience in exchange for personal financial impacts that are either excessive or difficult to recognize.

A primary outcome of all this financial innovation is that U.S. households “in aggregate have taken on greater risk,” conclude professors at the Harvard Business School in their 2010 paper, “A Brief Postwar History of US Consumer Finance.”  Consumers now have an enormous amount of latitude – arguably too much latitude – to borrow, shift assets, save for retirement (or not), play the markets, or engage in peer-to-peer lending, they say.

As a result, risks pervade our investment portfolios, savings and retirement accounts, borrowing decisions, and how we purchase consumer goods.  And that’s the problem. …Learn More

Birds

Find Best Job Market with Online Tool

This online tool for exploring urban job markets is very cool.

It could be a big help for high school and college graduates looking for work, especially those willing to migrate to a new city and trying to figure where to go. What’s unique about it is that it ranks the nation’s large, mid-sized, and small cities based on the user’s personal preferences.

To use the tool, created by the American Institute for Economic Research (AIER), the job hunter decides how high to rank the importance – from 5 (most important) to 1 (not important) – of nine different aspects of the job market and lifestyle in their ideal city: low unemployment, high average earnings, high labor force participation, public transportation, highly educated peers, low rent, high diversity, plentiful bars and restaurants, and many arts and entertainment options.

To test it, I selected a 5 for low unemployment and high labor force participation and a 1 for everything else (the bar scene, public transit, diversity etc.).  Cities like Minneapolis, Denver, Salt Lake City, and Austin came up as the best cities, when these two job-market criteria were most important.

AIER also compares different cities in a report, which is available here.

Of course, other things are important when relocating. But the tool forces job hunters to balance their priorities – a strong job market or a good bar scene?  To play around with AIER’s gadget, click here.Learn More

Woman stretching

Quiz: Financial Well-being or Unease?

What does it mean to have a sense of financial well-being? Or what does it mean to have its opposite, financial uneasiness?

Based on in-depth interviews with dozens of people in focus groups, the federal Consumer Financial Protection Bureau has developed a financial well-being quiz. The quiz is the agency’s attempt to quantify a very subjective concept so that researchers can measure it and integrate this measure into their research, said Genevieve Melford, a senior research analyst for the CFPB.

“It’s about creating a tool that allows meaningful research and effective interventions that might help people,” she said.

We think regular people can also gain personal insight by taking a short version of the CFPB’s quiz on this blog. After taking the quiz, write down your score, and return to the blog to learn what it means.

Button linking to quiz
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Older woman at computer

The Secret to Longer Life: Keep Working

If having an adequate income in retirement won’t persuade you to delay that retirement date by a year or two, try this argument: you’ll live longer.

A new study in the Journal of Epidemiology and Community Health found strong evidence that older workers who retire even one year later have lower mortality rates.  This held true for both healthy and unhealthy people.

The researchers at Oregon State and Colorado State used a survey of older workers to follow some 3,000 people who were employed in 1992 but had retired by 2010.  Since health drives mortality and is a factor in deciding when to retire, they separated their research subjects into two groups – healthy and unhealthy – to see if they had different results.

The healthy people were more likely to be physically active, non-smokers with a lower body mass index and fewer chronic medical conditions.  Other research has shown that having meaningful work can also contribute to health at older ages.

Over the period of the study, one in four unhealthy retirees died, compared with just about one in 10 healthy people. But the survival odds improved for people in both groups who retired after age 65, reducing the risk of healthy people dying by 11 percent and unhealthy people by 9 percent for each year of delay.

These general results aren’t necessarily true of every individual worker: some people are in such stressful or physically demanding jobs that retirement might be good for their health. Further, the reasons behind the health benefits of a longer working life are not fully understood. …Learn More

Contingent Labor Force Growing Fast

Most workers quickly realize that the best solution to low earnings in a job with scant or non-existent benefits is to move on to something better.

But this is increasingly difficult to pull off, because technology and other powerful forces are reshaping the 21st century economy – and degrading the quality of the jobs that are available.  As companies seek to cut labor costs, technologies like scheduling software for retail and fast-food workers and platforms like Uber and Task Rabbit are making it easier to do.

Chart: Alternative WorkThe result has been a rapidly growing contingent labor force of temp-agency workers, freelancers, independent contractors, workers for contract companies, and on-call workers with unpredictable schedules, according to a recent study by prominent Harvard and Princeton economists.  They estimate that this contingent labor force has increased from 10 percent of all U.S. workers in 2005 to nearly 16 percent today.  Its growth effectively accounts for all of the net job gains over the past decade.

The transformation under way is so apparent that it has earned nicknames like the “gig,” “sharing,” or “on-demand” economy.  The resulting jobs are often touted as giving workers flexibility and the freedom to earn more money – and sometimes they do.  The researchers conducted their own survey of more than 3,800 contingent workers, and business consultants and computer engineers might be good examples of the independent contractors and freelancers who said in the survey that they prefer their arrangements to working for someone else. …Learn More

Friends at dinner

5 Ways Millennials Mess Up With Money

The harsh reality is that you aren’t earning as much money as you think you are, and you don’t have as much to spend as you think you do – so it’s easy to let spending get out of control.

Gallup chartAndrea Woroch, only 34 years old herself, delivers some tough love to those who’ve already developed poor spending habits. A personal finance expert for the Millennial generation, Woroch said a perilous time is between the cash-strapped period right after college and the time when the steady, but modest, paychecks start flowing.

Early on, she explained, the attitude was “Okay, let me go to happy hour on this day because I can get $1 tacos and a beer. Now it’s okay to spend $20 for dinner. But that adds up, and they end up spending even more.”

Millennials polled by Gallup said they prefer saving to spending.  But Woroch, in an interview, provided five harsh observations about the obstacles to saving that she’s observed among young adults – including her husband, when they started dating:

  • You eat out all the time. Rightly, socializing is a big part of life. Eating out is also part of a larger trend: in March, consumer spending on dining out surpassed grocery store sales for the first time. Woroch advises that “spending money at the grocery store will help you spend less on food and leave room in your budget to put towards your savings goals.” …

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Person screaming

To Escape Stress, Some Workers Retire

Call it the “fed-up factor” – the uncomfortable circumstances at work that spur some older people to retire, sometimes prematurely.

Squared Away’s readers recently shared their personal experiences in comments posted to a blog post about three job characteristics, identified by researchers, that are linked to earlier retirements: stress, inflexibility, and increasing demands.

Working in the healthcare field has had unique stresses – at high levels – for one reader, Elin Zander, a dietician. Stress “is experienced by clinicians trying to provide quality care in an ever more difficult environment,” she said. “That is why I will retire as soon as I can afford to.”

Paul Brustowicz and his wife both retired to remove themselves from uncomfortable situations – her retirement was to relieve her stress from working as a manager in the demanding healthcare field. As for Brustowicz, “an abrupt change in management with a supervisor who treated me like a newcomer changed by mind,” he said.  He had planned to work until 68 but didn’t make it to 67 in his non-managerial job as a training professional for a life insurance company.

John Schmidt’s stress came in working as a high-tech consultant after 30 years in the field – though not for obvious reasons. …Learn More

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