March 11, 2014
Students Take Charge of College Loans
Tatiana Andrade (standing), an ambassador for American Student Assistance, hosts a Jeopardy match to educate classmates about their student debt.
College students usually plan on repaying their loans after graduation, when they’ve landed a full-time job. Freshman Tatiana Andrade is making payments while she’s still in school.
Andrade is already $14,500 in debt. She’s on track to owe some $60,000 when she completes her four-year degree at Stonehill College outside Boston, even though her parents are sharing the cost. To chip away at her debt, she pays off between $100 and $150 per month from her earnings in a part-time job.
Andrade is among a slim but growing minority of students and recent graduates becoming proactive to get control of their student debt – before it controls them. She advises classmates to do the same as Stonehill College’s ambassador for the non-profit American Student Assistance (ASA), which has a program and website – SALT – aimed at educating and counseling students on strategies to minimize how much they borrow and to manage their loan payments.
Making loan payments today minimizes the total amount she’ll pay in the future for three reasons. Loans paid immediately carry a lower interest rate than loans that permit her to defer payment until after graduation. She’s cutting down the total amount she’ll have to pay back after graduation. She said she also avoided a loan-origination fee required on deferred loans equal to 4 percent of the loan.
“Every dollar counts,” she said. Waiting until graduation “is the worst thing you can do.” …Learn More
March 6, 2014
Delay Retiring: A ‘Smart’ Decision
If postponing retirement can improve one’s financial security in old age, why do so many people rush to retire when they reach age 62?
Much research has explored the financial and health reasons that explain why so few people choose to retire later. Taking a different tack, a new study found that individuals with higher cognition foresee a higher probability of working longer.
There were two steps to this research.
First, participants in an Internet survey were asked if they planned to continue working full-time after age 62 and, separately, if they expected to work past 65. Participants were between the ages of 45 and 61.
Next, the researchers measured each survey participant’s “crystallized intelligence,” which is the wisdom acquired with age. This type of intelligence helps to compensate for declining “fluid intelligence” – the ability to think quickly – which peaks in young adulthood. To measure their crystallized intelligence, participants took a standard psychology test in which they are shown pictures – perhaps a goat, maracas, a sextant (an astronomical instrument) – and asked to name them. …Learn More
March 4, 2014
New Book Spotlights Behavioral Finance
Did you know that an investor may be more likely to hold on to a money-loser if he bought it himself than if he inherited it? That people born with the “warrior gene” will take more risks? Or that trust is essential to whether individuals prepare for retirement?
A new edited volume, “Investor Behavior: the Psychology of Financial Planning and Investing,” is a thorough tour of the research on these and other aspects of behavioral finance. The book was compiled for financial planners, investment professionals, academics, and finance students and edited by two finance professors, H. Kent Baker of American University’s Kogod School of Business and Victor Ricciardi of Goucher College.
The field of behavioral finance is gaining traction as financial experts increasingly recognize that psychology, sociology, neurology and other fields may have something to say about why people behave the way they do around money.
Traditional theories explaining investor behavior, such as modern portfolio and utility theory, assume that people make “rational” choices. In contrast, the research covered in this new book tries to explain why financial decisions are not always rational, are often infused with emotion, and can be very predictable. Or, as 1978 Nobel laureate Herbert Simon once explained, orthodox finance’s “traditional paradigm did not describe the behavior of real people,” the book says. …Learn More
February 27, 2014
Why Some Retire, Others Persevere
When older workers are weighing whether to retire or carry on for a few more years, it’s unsurprising that the characteristics of their jobs are a big consideration:
- Higher pay keeps workers in the labor force longer.
- Workers who feel discriminated against are often the first to retire.
But personality also matters, says a team of researchers from the University of Southern California (USC) and the RAND Corporation who analyzed data from the Health and Retirement Study, an on-going survey of age 50-plus U.S. households.
Consider two types of personalities – highly active and engaged, and passive and reserved. The researchers found that higher wages are effective in persuading more passive people to continue working. But monetary rewards are, for highly active workers “a less important driving factor for the decision to remain in full-time employment,” said Marco Angrisani, one of the study’s co-authors from USC’s Center for Economic and Social Research. Active workers will continue to work, simply because they like it or feel compelled to keep busy. …Learn More
February 20, 2014
Minimum Wage Workers: Who are They?
Whether or not you agree that the minimum wage should be raised, there are very real financial strains on the 5 percent of U.S. hourly workers who earn no more than $7.25 per hour, the current federal minimum wage.
This video, produced by Bloomberg TV, puts a human face on a few of these 3.5 million workers. Data from the U.S. Bureau of Labor Statistics provides more information about who they are:
- Nearly half are over age 25.
- Two-thirds are women, and one-third are men.
- About three-fifths of minimum-wage workers are in service occupations, such as food preparation and food service.
February 20, 2014
Mass. Health Law Cut Debt, Bankruptcy
Medical debt is a primary cause of bankruptcy. But new research finds that the Massachusetts health reform, by extending health insurance to a greater share of the state’s population, has reduced residents’ total debts and bankruptcy filings and improved their credit scores.
This experience is especially relevant now that the federal Affordable Care Act (ACA), modeled after Massachusetts’ 2006 reform, has effectively made health insurance mandatory nationwide, starting this year.
Health insurance is central to a household’s financial health, because one medical catastrophe can blow a hole in their savings account or throw them into bankruptcy. Most households who lack coverage are in the bottom half of the income distribution, and more than one in three uninsured individuals can’t afford his medical bills and is forced to pay them over time. Two out of three individuals paying over time owe more than $2,000, and one out of five owes more than $8,000.
Researchers at the Federal Reserve Bank of Chicago and Notre Dame examined the Massachusetts reform’s financial benefits for state residents between the ages of 18 and 64, using a Federal Reserve data set based on credit reports. Between 2006 and 2012, health reform increased the state’s insured population from 90 percent to 97 percent of all residents.
The benefits included: …Learn More
February 18, 2014
How Divorce Affects Women’s Earnings
In the aftermath of the women’s movement of the 1960s and 1970s, the incidence of divorce climbed, peaking around 1980.
Millions of women were suddenly on their own at a time when women were still having to prove themselves to many employers. But I remember being impressed by a college friend’s mother whose divorce wasn’t the disaster her family feared: she marched into a high-profile non-profit in Chicago and landed an impressive job.
It’s been well established in academic research that women often face financial struggles after divorce. Married women are typically better off, since couples can live more cheaply and since two incomes are better than one.
But a new long-term study of women who divorced during the mid-1970s indicates there were “positive effects of marital dissolution:” higher earnings. …Learn More