A woman wearing a backpack sitting on a grassy hill.

Loan Delinquencies, Need for Help Grows

As delinquencies by college graduates have increased, so have their personal financial risks: 15.1 percent of loans originated in late 2010 are now delinquent, up from 12.4 percent of late-2005 loans, according to a January report by FICO, creator of the credit score. More students are also delaying their loan payments.

“This situation is simply unsustainable,” warned Andrew Jennings, head of FICO Labs.  “When wage growth is slow and jobs are not as plentiful as they once were, it is impossible for individuals to continue taking out ever-larger student loans without greatly increasing the risk of default.”

American Student Assistance (ASA) is a non-profit that helps college graduates with the complex task of managing their loans.  Debt prevention is the best course of action, and an increasingly urgent one for students.  For those who are already in debt, click here for how to call an ASA counselor. Click “Learn More” to read a May 2011 article about ASA. …Learn More

Why Minorities Need Social Security More

Source: Social Security Administration

The U.S. population is in the midst of a transition from predominantly white to one in which “minorities” will one day be the majority.

A Social Security Fact Sheet recently published by the Center on Budget and Policy Priorities in Washington throws a fresh perspective on the program, which provides the financial bedrock for most retirees. It shows that the program is even more important to African-Americans and Latinos than it is for white Americans.

Seventy-three years after Ida May Fuller became the first person to receive a Social Security check, on Jan. 31, 1940, Social Security provides more than half of the retirement income received by about two out of three elderly white Americans. But many more – about three out of four – African-American and Latino retirees rely on Social Security for more than half their income.


The obvious reason is that minorities earn lower incomes on average while they are working, according to Kathy Ruffing, a senior fellow at the Center, and that has “hampered their ability to save for retirement.”

Congress intended Social Security to be a progressive program that benefits lower-income individuals more. The Social Security Administration’s (SSA) formula for calculating the monthly check is designed to replace a larger share of the employment income of, say, a maintenance worker who has retired than it does for a retired corporate executive. …Learn More

Frustrations of Managing College Loans

During FAFSA season, remember this: getting the college loans is easier than managing them post-graduation.

Multiple telephone calls to Sallie Mae and the U.S. Department of Education (DOE) – and a reporter’s tenacity – were required to get to the bottom of what seemed a simple question: is my niece, a recent college graduate and special education teacher, eligible to have some of her loans forgiven?

Our maddening quest for an answer is one small example, but it raises serious concern about whether freshly minted graduates can navigate the student loan maze and figure out their best strategies for paying back their loans. Yet their success will be critical to ensuring they don’t pay more than they should and that they are able to take advantage of the federal government’s repayment and forgiveness programs.

Squared Away invites graduates and parents to share their experiences, as well as tips for managing loans, in the comments section at the end of this article.

Our saga began last summer, during an interview with a financial adviser who mentioned that the federal government offers a forgiveness program for special education teachers. I immediately thought of my niece, Rachael, who was hired last fall in a suburban Chicago district. Now I needed to confirm it.

The reason I had to make five calls is that the DOE and Sallie Mae —Rachael’s biggest single lender – repeatedly conflated my question with a loan forgiveness program for teachers in low-income school districts. Yes, I agreed each time, there is a program for teachers in low-income schools – but that’s not what I’m calling about. My question is whether special ed teachers qualify for forgiveness regardless of the income level of their school district.

My 26-year-old niece is a straight-A student and has a graduate degree and the determination learned from playing basketball in college. But when it comes to her loans, she admits, “I don’t know what to ask.” Once we entered the college-loan maze, I learned how confusing this process is – even for this veteran reporter who does know what to ask.

Here’s the chronology of calls – the first one led by my niece – between December 26 and January 2: …Learn More

Olen Explains ‘Pound Foolish’

New York journalist Helaine Olen lit up Twitter last week with her new book, “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.” She has attracted high praise – from The Economist, The New York Times, and others – and a few critics, in the online community and at Business Week: “Financial professionals,” Business Week wrote, “are not responsible for knitting the safety net, though Olen makes it sound as though they are.”

Squared Away asked Olen to explain her thinking behind the book.

Squared Away: Let’s get this out of the way. What do you have against financial planners?

Olen: I don’t have anything against all financial advisers, but a lot of people are selling themselves as experts in things they are not expert in. I believe that their commissions are almost inherently conflicted. I also believe that the minute you start selling things as, “I can protect you. I can do better than…,” you’re getting into dangerous territory, because it’s simply not true.”

Are there situations in which financial planning services are useful?

I would never want anyone to think I don’t believe a good, non-conflicted financial planner or coach isn’t useful. They are, very much so. I think very few of us actually see ourselves honestly, and we could all use an objective eye looking over things like our money and investing strategies at least occasionally. But consumers need to know how their chosen advisers are compensated and if that method of compensation can influence their recommendations and strategies.

You say, “No amount of savvy or money management can fully protect” people from a punishing economy that pummels wages and erodes high-quality employment. Are average individuals blamed for troubles that are larger than they are?

Olen: I absolutely think this sort of sentiment – the idea that we will all be okay if only we learn proper money management – is an excuse to blame people for their troubles. Since the late 1970s, a massive inequality issue has opened up. We have very little class mobility in our country. We know that our net worth plunged by 40 percent in 2007-2010. To turn around and tell people that their issues are all their fault is naïve at best and it’s an outright lie at worst. …Learn More

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401(k) Mutual Funds Mediocre

A spate of research in recent months shows that the mutual funds offered in employer 401(k)s have fairly unremarkable – though not disastrous – investment performance.

As with any academic study worth its salt, the various authors’ findings are complex and loaded with critical twists, turns, and footnotes.  Descriptions of three research papers on 401(k) plan returns can be found by clicking “Learn More” below. But here’s the gist:

  • So-called Target Date Funds – investments are based on each employee’s planned retirement age – perform better than investments guided by financial advisers hired by one Oregon employer to advise its workers. TDFs also outdo employees who go it alone.
  • When the 401(k) plan’s trustee is also a mutual fund management company, it’s more reluctant to remove its own, poorly performing funds from the plans’ smorgasbord of funds.
  • Employers select mutual funds that outperform a portfolio of randomly selected funds but underperform passive indexes.

There’s a common thread in many of these studies: the extra fees that investors pay for advice or the stock pickers who manage their mutual fund often don’t translate to better returns… Learn More

Music as Money Metaphor

To get a grip on retirement worries, overwhelming student loans, or squeaking by, it always helps to get more money or make a plan.

But finding a way to think about how to manage your money is also useful. It’s like making music, says Timothy Maurer, a Baltimore financial planner. At first, you have to master the “boring stuff, but eventually real songs start being produced.”

p.s. Maurer said that his brother Jon Maurer, who is “a far more accomplished musician than I,” is the pianist in this video.

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Various herbs

Financial Planners Diversify: Four Types

Brokers, registered investment advisers, fee-only, commission-based, dual license – the labels for financial planners can be intimidating.

In a consumer-friendly article, the Retirement Income Journal (RIA) in November identified four adviser types, based on what they do for their clients.

Most advisers still fall into the traditional Technician category. But the rise of other types – Strategist, Behaviorist, and Life Coach – partly reflects a profession rocked by the 2008 financial crisis. The number of advisers nationwide fell 3 percent last year, according to Cerulli Associates in Boston.

“[T]he combined impact of the financial crisis, boomer retirement, the advent of behavioral economics and fee compression is forcing more advisers to evolve,” RIA explained.

The following is an adaptation of RIA’s article, which was based on a presentation to the University of Pennsylvania’s Wharton School of business by fee-only advisers Paula Hogan in Milwaukee and Rick Miller in Boston.

The new year is around the corner, and perhaps you’ll want to hire a planner. But which of the following four types suits you? …Learn More