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College Debt = Student Stress

It’s hardly surprising that debt causes stress, but this condition seems rampant among the college crowd.

A new study in the Journal of Financial Therapy finds that nearly three out of four students feel stressed about their personal finances, and student loans are a big reason.

In 2012, the average graduating senior owed $29,400. Student debt has already been shown to be a barrier to homeownership and a cause of bankruptcy among young adults. Paying back the loans is also very difficult when borrowers don’t graduate and earn less in their jobs. Add stress to the host of issues that accompany borrowing for college.

Students who have debt or expect to be in debt after college – whether college loans, credit cards, or car loans – are “significantly more likely to report financial stress” than students who did not have any debt, the study reported. …Learn More

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Avoidance Comes with Financial Anxiety

Knowing how to budget or invest one’s retirement savings are useful skills. But managing money isn’t just about what you know – it’s also about how you feel.

That’s the gist of a handful of recent studies into a newly identified emotion known as financial anxiety. These early studies look at two things: 1) is financial anxiety real?; and 2) does it explain why people do things like avoiding money issues or going into debt to paper over their financial problems?

The evidence says yes to both questions.

A 2012 study established financial anxiety as an identifiable psychological condition that can be measured using a standard psychological test. The researchers gauged their subjects’ reaction times to pairs of words flashed on a computer screen – negative financial words (debt), positive financial words (jackpot), neutral financial words (bank), or anodyne control words (camp). The subjects were timed on how long it took to identify a word after an on-screen icon replaced one word in the pair.

When only the negative financial word was left on the screen, people with higher financial anxiety were slower to respond than when only the positive word was visible. The prevalence of longer delays for negative words suggests that most subjects had at least some financial anxiety. …Learn More

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Black Americans’ Distrust of Finance

Redlining, subprime mortgages sold in minority and immigrant neighborhoods, higher interest rates on car loans – black Americans have reason to distrust the financial system.

This spills over into their retirement planning, specifically their relationships with financial planners and how much they save, concludes a study in The Journal of Personal Finance. Among the findings is that blacks and, to a lesser extent, Latinos have difficulty trusting planners.

Past research shows trust can play an important role in financial decisions. People who trust the stock market, for example, are more likely to invest in stocks. But black Americans start out with generally lower trust levels: nearly half reported “low trust,” compared with only about one-quarter of whites, according to the survey data used by three finance professors in their study last year.

The researchers then assessed whether trust levels affected two specific behaviors: hiring a financial planner and saving for retirement.

A lack of trust reduced the likelihood an individual will engage a planner by 18 percentage points, compared to individuals who tend to be more trusting. The surprising result was that blacks were actually more likely to hire a financial planner than were whites with similar incomes when the researchers controlled for trust – meaning the controls eliminated differences in behavior related to individual trust levels.

Another finding was that while blacks have less retirement savings than do white Americans of similar incomes, this difference virtually disappears when the analysis controls for the difference in their trust levels.

If black Americans could get past their inherent lack of trust and get good advice or good financial products things might be different, said one of the study’s authors, Terrance Martin, an assistant professor of finance at the University of Texas-Pan American in south Texas.

“You might see less of a difference between black households’ accumulated retirement saving relative to white households,” Martin said.Learn More

Millennials: Managing a Steady Paycheck


As a 20-something working in downtown Chicago in the 1980s, I spent every dime of my disposable income – and then some – on beer and Thai food, vacations, clothes, and parking tickets.

Fast forward 30 years, and my niece and nephew in Chicagoland are now graduating college. It’s liberating to leave school for a full-time job and a substantial increase in one’s income after years of penury. It’s also so tempting to squander this money.

But young adults no longer have that luxury.

The financial demands Millennials will face over their lifetimes are shaping up as far more complex than they were for their baby boomer parents, whose primary worry was buying a house. …Learn More

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TDFs Appeal to the Most Inexperienced

New research finds that the people most likely to benefit from target date funds are also the people inclined to invest their 401(k)s in them – unsophisticated investors.

Retirement and financial literacy researchers long ago established the pitfalls of our nation’s do-it-yourself system of retirement saving (i.e., people don’t save at all or don’t save enough, and investing is too complex for most people). Target date funds (TDFs) have become an increasingly popular solution to the investment piece of the problem in the wake of the Pension Protection Act of 2006, which allowed employers to use them as the default investment option in defined contribution savings plans.

TDFs place a 401(k) participant’s accumulated savings into a broadly diversified portfolio of stocks and bonds that shifts the asset mix as they age. When employees are young and retirement is a distant concept, TDFs invest heavily – as much as 90 percent – in stocks. As employees age, a growing share goes into more conservative bonds.

TDFs are now the primary default investment among employers that automatically enroll new employees into their savings plans. TDFs are a good option not only for inexperienced investors but also for more experienced investors who prefer to delegate the task of portfolio rebalancing to their fund manager. However, employees typically have the option of transferring out of the TDF and selecting other investments offered in their plan. …Learn More

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Late-Career Job Changes Reduce Stress

Great news for older workers considering a career change – those who’ve done it are happier and less stressed.

People who attempted a career change sometime after turning 45 were surveyed last year by the American Institute for Economic Research (AIER) in Massachusetts.  Whatever the reason for making a change – voluntary or forced – the majority of those who did so felt their results were successful.

These late-career changers need to be put in a larger perspective.  Older workers are much more likely to stay put in a job than are younger people moving up the ladder, and older people also have a tougher time recovering and finding a new full-time job after becoming unemployed.

But when older workers can change their employment, the outcomes are positive.

“I feel like a new person” – 72 percent of job changers agreed with this statement, while 65 percent said their stress levels fell, according to the AIER.  There are also downsides to late-career transitions: a hefty minority of those surveyed advised others taking this path to be open-minded about their working hours and lower compensation, though half of those surveyed said their pay eventually increased in their new jobs.

“If you feel you need a change, then do it,” one survey respondent commented.

This survey provides a fresh take on a comprehensive 2009 AARP-Urban Institute study that reached similar conclusions.  The AARP-Urban study found that many older workers tend to move into less prestigious jobs when they make a change.  For example, managers often take non-management positions, which could partly explain why the share of people who said they felt stressed about their work dropped by almost half after a late-career change, from 65 percent to 36 percent. …Learn More

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Kids’ College Trumps Parents’ Retirement

Parents have spoken: paying for college is affecting their retirement planning.

Two new surveys indicate that the surge in college costs is impinging on Americans’ retirement finances.  One survey, by the research firm Hearts & Wallets, found that boomer parents who support their adult children are more likely to delay retirement than parents of financially independent offspring.  The second survey, by the mutual fund manager T. Rowe Price, found that half of parents are willing to delay retirement or dip into their retirement savings to fund college.

college grads chartThe surveys included young, idealistic parents as well as parents staring down the barrel of the retirement gun, and parents whose children achieved financial independence years ago. Nevertheless, these responses consistently show a willingness to trade retirement security to pay for their children’s college education.

The findings aren’t shocking, since parenthood is defined by sacrifice. But financial planners offer some tough advice about parental financial obligations, especially for clients zeroing in on retirement. Parents – as opposed to their offspring – have relatively few years left in the labor force to save for retirement.

“There’s going to be a day when you can’t work anymore,” said Kelley Long, a financial planner with Financial Finesse, which provides independent financial education programs and a financial helpline for U.S. workplaces. …Learn More

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