Psychology Matters

Rick Kahler believes that financial planners who do not factor in the psychological aspects of their clients’ money problems are “missing the elephant in the room.”

Kahler, a founding board member for the Financial Therapy Association, usually meets with each new client in the presence of a therapist. And for the minority of his clients who are “stuck” and can’t get past their money issues, which are often rooted in childhood, he asks that they submit to psychological coaching.

In his 2008 book, “Facilitating Financial Health,” Kahler identified several common money disorders. The South Dakota planner recently shared his ever-evolving list, which Squared Away used as the basis for the above slide show.

Click here to watch an interview in which Kahler talks about our “number one stressor.”Learn More

Image: womens pay gap

Women Don’t Ask

Why do men earn more than women? Attitude!

Last week on Squared Away, Francine Blau, a Cornell University labor economist, discussed the economic and other external reasons behind why women earn less than men. But there’s another way to look at it: women’s behavior differs from men’s – and that plays a role in how much they’re paid.

A woman earns 77 cents for every dollar that a man earns. This disparity undermines women’s well-being, reducing their standard of living and affecting everyone’s retirement – including their husband’s.

The following is an excerpt from a June 2003 article I wrote as a Boston Globe a reporter about an experiment by researcher Lisa Barron, a professor of organizational behavior at the Graduate School of Management at the University of California, Irvine. It involved 38 future MBAs – 21 men and 17 women – who participated in mock job interviews with a fictitious employer.

In the mock interviews, the students were offered $61,000 for a new position. Here’s what I wrote about the differences in men’s and women’s approaches to their pay negotiations:

Men, responding to the salary offer, asked for $68,556, on average, while women requested $67,000 for the same job.

More revealing were differences in fundamental beliefs men and women expressed about themselves when Barron questioned them: 70 percent of the men’s remarks indicated they felt entitled to earn more than others, while 71 percent of women’s remarks showed they felt they should earn the same as everyone else. Also, 85 percent of men’s remarks asserted they knew their worth, while 83 percent of women’s remarks indicated they were unsure.Learn More

chart: how much should I save?

401(k)s “Top” Financial Priority. Really.

A large majority of people in a survey released last week identified saving for retirement as their top financial priority. If that’s the case, then why aren’t Americans saving enough?

Stuart Ritter, senior financial planner for T. Rowe Price, the mutual fund company that conducted the survey, has some theories about that. Squared Away is also interested in what readers have to say and encourages comments in the space provided at the end of this article.

But first the survey: about 72 percent of Americans identified saving for retirement as “their top financial goal,” with 42 percent saying that a contribution of at least 15 percent of their pay is “ideal.”

Yet 68 percent said they are saving 10 percent or less, which Ritter called “not very much.” The average contribution is about 8 percent of pay, according to Fidelity Investments, which tracks client contributions to the 401(k)s it manages.

The Internal Revenue Service last week increased the limit on contributions to 401(k) and 403(b) retirement plans from $16,500, to $17,000. The so-called “catch-up” contribution available to people who are age 50 or over remains unchanged at $5,500.

The question is: why do Americans give short shrift to their 401(k)s, even as people become increasingly aware that their dependence on them for retirement income grows? Ritter offered a few theories in a telephone interview last week:

  • The financial industry is partially to blame. “We have done a really good job of conveying to people how important saving for retirement is,” he said, “but what we haven’t done as good a job of is telling them how much to save.”

Employers may also share blame. Further confusing the issue, the savings rate depends on when the employee starts saving – the percent of pay is lower for those who start in their 20s than for someone who waits until they’re 45. …

Baby boomer moms

Boomer Moms, Here’s A Radical Idea

Research shows that when children leave the nest, married couples spend 50 percent more on discretionary spending like eating out and vacations.  But whether you’re ready or not, retirement is bearing down hardest on women.

Here’s a radical concept for moms whose children have suddenly grown up: focus on your own financial needs. Women usually out-live their husbands and need to be on top of the situation. So getting a handle on your financial priorities should be at the top of your list.

Squared Away interviewed financial experts to come up with five priorities for baby boomer women whose kids have flown the coop.

Get Smart. If you haven’t had time to pay attention to the household finances, start simple.  Financial expert Wendy Weiss, on her blog, Hot Flash Financial, said the first thing to do is track down and inventory the types of accounts and the financial institutions that hold your money: savings, retirement plans, insurance documents, your and your husband’s latest Social Security statements – add them up and determine what you’ve got.  Then get a handle on the size of the credit card debts and mortgage.

“Just find out what you have,” Weiss says.  “There are questions you can ask later.”

Talk to Your Kids. You’ve poured your heart into nurturing your offspring.  So turn the tables and ask them to have a conversation about your needs once you retire.

Financial advisers swear by these wide-ranging discussions, the content of which reflects the diversity in families.  The children will be reassured if you’ve saved enough or will share your concern if you haven’t.  Perhaps they’ll have opinions about whether you should purchase long-term care insurance.  They should also know the beneficiaries on your financial and pension accounts and insurance…Learn More

app icons

How Smart Are Smart Phones?

Nearly half of people who have cell phones pay more than $100 per month for the service and 13 percent pay $200 or more, according to a survey by an online coupon company.

That doesn’t include the cost of the physical phone, the app and music downloads, the extra data plans. A certified public accounting organization in Oregon, Oregon Saves, estimates that the total cost for a two-year contract can easily reach $3,000.

And then there are the rogue teenagers who go over the monthly limits on minutes set by their parents’ cell plans – eventually, the parents relent and buy an unlimited data/text plan, which drives up their monthly charges permanently.

Wow, this habit is getting expensive.

The cell phone isn’t the only electronic habit that’s costing us.  We also pay hundreds for cable TV, the Internet on our home computers, the land line.  The automatic withdrawals for these services suck hundreds from our bank accounts each month – and we may not notice how much we’re spending since the transactions are electronic…Learn More

Paying Mortgage Faster Not Best Option

Americans have been paying down their high-interest credit cards like crazy. Once you do, financial advisers say, think hard about the best use of that spare cash.

With mortgage interest rates at historic lows – they’re scraping 3.5 percent on 30-year fixed loans and 2.8 percent for 15 years – paying extra on the mortgage should no longer be a priority. This simplifies what is a difficult decision for many of us: what’s next?

Saving for retirement and paying off student loans are now the top priorities, in that order, according to two financial advisers interviewed by Squared Away. But paying off the mortgage is a mistake that many people continue to make: mortgage debt outstanding has also declined in recent years, from $11.1 trillion in 2008 to $10 trillion currently, according to the Federal Reserve.

“Paying off a mortgage – I’m not a big fan of that,” said John Scherer of Trinity Financial planning near Madison, Wisconsin. He proposes that his clients funnel the extra money that had been used to pay credit cards into other personal finance “buckets.” …

Learn More

A Modest Solution to Your Financial Woes

Perhaps because our summer vacations are over and it’s time to increase our 401(k) contributions, Squared Away is on a jag about saving money.

Amitai Etzioni is one of the last old-school public intellectuals.  He has done everything from writing 24 books to serving in the Carter White House and currently directs George Washington University’s Institute for Communitarian Policy Studies.  But this video captures the wisdom of an 83-year-old man who taps deeply into the psychology of money in the 21st century. 

Etzioni also wonders why, when he suggests his prescription to people, they “get angry with me.”

Since everyone is unique – and uniquely motivated – you may prefer a video that ran last week. 

To support our blog, readers may also want to sign up for our e-alerts – just one per week – by clicking here. And there’s always Twitter!Learn More

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