Inner-City Teen Interns Are Better Off

High school students who participated in Boston’s summer jobs program in 2015 work on a public beautification and landscaping project.

It’s a spring rite in Boston.  The mayor’s office and private and non-profit employers hustle to get ready for a program employing more than 10,000 inner-city teens for the summer.

A new study of the summer 2015 participants shows that the high school students made remarkable strides, compared with the kids who applied but were not accepted for the limited number of slots available in the program.  New York and Chicago have similar, large programs.

The Boston teens, who are mostly either black or Hispanic and from low-income neighborhoods, improved their job readiness, from showing up on time to developing their resume-writing skills, and also boosted their confidence and sense of identity. Perhaps most important, the program increased aspirations, particularly among black males.

Two out of three participants have single parents, and one in three is from immigrant families who do not speak English.  While college-bound children of wealthy parents may choose summer camp over a summer job, being idle in the summer can be a big disadvantage for inner-city kids.

“These kids just have less opportunities to develop [job] skills just by growing up in the neighborhoods they do,” said Alicia Modestino, the Federal Reserve Bank of Boston researcher who studied the program.  “Fewer people in their lives have a job. They’re living in a neighborhood with fewer job opportunities.”  Further, single parents in low-income households often work nights or have multiple jobs and are too pressed for time to help their children develop these skills.

The jobs in Boston’s program are primarily either with private-sector employers – some of the top-tier internships are with major corporations – or with non-profit organizations such as local YMCAs, Sociedad Latina, the Boys and Girls Clubs of Dorchester, and the New England Aquarium. A requirement of the summer program – one of the nation’s oldest – is that each high school student attends sessions in which they learn to write resumes, practice job interviews, and answer questions properly on online applications.

Modestino was surprised that the strongest results in the study came in the category of “social engagement.” For example, her study found a sharp increase in the share of participants reporting they felt they “had a lot to contribute.” …

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Social Isolation a Real Danger for Elderly

Social isolation kills – literally.

In this video, Professor James Lubben, founding director of Boston College’s Institute on Aging, discusses numerous research studies showing that people who lack a social network of friends or family are more likely to neglect good health practices and to experience psychological distress, cognitive impairment, the common cold, and even death – “it’s on a par with smoking,” he said.

Seniors become particularly vulnerable to becoming isolated as they decline physically, but isolation then makes them more vulnerable to worsening health.

Social health should “be as important as mental health and as physical health,” said Lubben, who also is a professor of social work here at Boston College.

Summers are a fun and busy time – this video is a reminder that elderly family members and neighbors who aren’t very mobile might need some company or someone to check in on them. Learn More

Dominos falling

Financial Anxiety Amid Economic Growth

The economy keeps chugging along, unemployment has been bobbing at or below 5 percent all year, and wages have been creeping up.

Yet anxiety is rising, according to a newly released survey by Northwestern Mutual.  In February,
85 percent of Americans said they had “financial anxiety,” particularly about how they would pay for an unexpected emergency or medical bill.

And here’s how financial anxiety affects them:

  • Callout70 percent say it reduces their “happiness,” their mood, or their ability to pursue their dreams, passions, and interests.
  • 67 percent say it impairs their health.
  • 61 percent say it has a negative effect on their home life.
  • 51 percent say it has a negative effect on their social life.

For more than half, the most popular answer to how financial security would change their lives was: “Peace of mind that I never have to worry about day-to-day expenses.”

Northwestern Mutual summed things up by saying “the levels to which financial anxiety is impacting all corners of people’s lives is extraordinary.”

Pretty strong words for a typically cautious insurance company. Learn More

What’s New in Public Pension Funding

A small group of researchers at the Center for Retirement Research, which sponsors this blog, produces a large volume of analysis of the nation’s state and local government pension funds.

Their work isn’t typical of the personal finance information that appears in this blog. But it turns a bright light on the financial condition of the pension funds that millions of state and local government workers and retirees rely on. The bottom line, according to these studies, is that while some funds are in poor condition, many more are managing.

The following are short descriptions of the Center’s recent reports, with links to the full reports:

  • The big picture is updated in the new brief, “The Funding of State and Local Pensions: 2015-2020.” Eight years after the financial crisis, new data have confirmed that pension plan funding stabilized in 2015.  And despite poor stock market performance last year, plan funding improved slightly in 2015 under traditional accounting methods. On the other hand, funding is slightly lower under new accounting rules that require the plans’ financial statements to value their investment portfolios at market values.
     
    The appendix in this brief provides funded levels for 160 individual plans in the Center’s public pension database.
  • “Are Counties Major Players in Public Pension Plans?” The answer in this report is no, with the exceptions of California, Maryland and Virginia, where counties account for about 15 percent of pension assets.
  • FigureWhile retiree health plans are quickly disappearing at private employers, they remain prevalent in the public sector. These plans are not fully funded, and their unfunded liabilities are relatively large – equivalent to 28 percent of all liabilities for unfunded public pension plans – according to a March report, “How Big a Burden Are State and Local OPEB Benefits?”
  • New accounting rules, known as GASB 68, require city pension funds that are joint participants in plans administered by their state, to transfer their net unfunded liabilities from the state’s to the local government’s books. …

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Middle class illustration

More Americans Are Upper Middle Class

Yes, income inequality has risen dramatically over the past 35 years. But something else has happened that might surprise you.

The size of the upper middle class is expanding, as Americans migrate up from the ranks of the middle class and poor, according to a new analysis from the Urban Institute.

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Economist Stephen J. Rose uncovered this finding by defining how much income families needed in 1979, just before inequality really took off, to be counted as rich, upper middle class, middle class, lower middle class, or poor. He anchored his class divisions largely around incomes relative to the federal poverty level. For example, he set the income floor for the upper middle class at five times the poverty level. He then used U.S. Census Bureau survey data to estimate the share of American families falling into each income tier in 1979 and in 2014, with incomes adjusted for inflation. …Learn More

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Parents, Start Student Loan Homework!

Here’s a reminder that parents should start their homework this summer to minimize college loan repayments over the long haul. A few basic decisions can add or subtract thousands of dollars.

A little help came last week, when the interest rates on all federal student loans were reduced. Despite the declines, the rates for the PLUS loans available to parents remain much higher than the loans available to their offspring – taking out a PLUS loan will nearly double the interest paid on $50,000 over 20 years, compared with an undergraduate Stafford loan.

This is an argument for having prospective students take out the loans, rather than the parents.  As for paying them back, financial advisers tend to agree that young adults with decades of work ahead of them can share in that responsibility at a time their parents are facing retirement.  This complex family decision depends on myriad factors, including how much income the graduate can expect to earn after college and how comfortable the parents are.

There are one-time, upfront fees on federal student loans, and they are also much higher for parent PLUS loans: 4.272 percent of the loan’s principal amount versus 1.068 percent for Stafford loans for undergraduates – these fees will go up for loans disbursed after Oct. 1.

The Institute for College Access & Success has put together an excellent cheat sheet explaining the federal loan options, who qualifies for various types of loans, and the costs of each.  To see this sheet, click here.

Below is the institute’s summary of the new loan rates, effective July 1: …Learn More

Which direction to go?

401(k) Investment Options: Less is More

There’s plenty of evidence of the unfortunate consequences for employees overwhelmed by too many investment options in their 401(k) plans. Studies find that confused employees might not join the plan at all, select investment funds that are not well diversified, or throw up their hands and put an equal amount in each fund offered by their employer. And as employers add more options, the new funds often carry higher fees and produce lower returns.

A new study took the opposite tack, examining how employees reacted when one large U.S. employer reduced the number of investment options. The results were lower fees and less turnover, saving employees an average of $9,400 over a 20-year period. Further, their new portfolios were less risky.

The employer, a non-profit organization, cut the number of investment options roughly in half, from the 90 different funds initially in the plan.  The employer also simplified the plan by sorting employees’ choices into four groups:

  • 13 Target Date Funds (TDFs) with low fees and investments determined by an employee’s age;
  • 4 index funds invested in a money market, diversified U.S. stocks, diversified U.S. bonds, and diversified international stocks;
  • 32 mutual funds organized by risk level, from small-cap growth funds and REITs to balanced funds and Treasury bond funds;
  • A brokerage account with wide latitude to invest.

The researchers – Donald Keim and Olivia Mitchell at The Wharton School – analyzed the responses among those affected by the change, which was anyone who held at least one mutual fund eliminated during the plan streamlining.  Those affected who did not choose replacement funds were defaulted into a TDF appropriate for their age. …Learn More

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