A group of women in business attire holding signs with question marks on them in front of their faces.

Women Crave More Information

It’s common knowledge that women save less in their retirement plans than men do. This is a major problem, because they live longer, are more likely to require nursing home care, and need more money.

To learn why women save less, Karen Holden and Sara Kock at the University of Wisconsin, Madison, recently conducted focus groups with state employees and analyzed data for the Wisconsin Deferred Compensation Program. Similar to a 401k, the program for Wisconsin government workers also allows tax-deductible, voluntary contributions, though there is no employer match. Squared Away interviewed Holden about their findings.

Q: Do women save less, because they earn less?

Holden: Average lower earnings are a factor but more surprising is that, at any specific salary level, women contribute a lower percentage of their earnings than do men. Women on average contribute 6.28 percent of gross pay, compared with 7.03 percent for men. While lower pay and age differences accounted for some of that, being a woman led to lower contribution rates. …Learn More

Pieces and the board of The Game of Life, a popular boardgame.

Money Games Are Great Gifts for Kids

The Boston Globe is providing a cool list of holiday toys for your children, to help them learn early and often about handling money – while it can still make a difference. In July, Squared Away wrote about another idea that would make a fine gift – call it “not your average piggy bank.” A May blog post was about a great book to teach children about what bank accounts are all about.Learn More

A stork carrying a baby flies in front of a pink background.

Parents: College Saving Not Optional

New parents: you have been warned. Mainstream media have rolled out one horror story after another about college graduates and their parents burdened with $40,000, $50,000, even $100,000 in student loans.

Not everyone plans to pay for their children’s education. But those who do need to think early about saving, because college has become extremely expensive – tuition costs are rising much faster than inflation.

The good news is that figuring how much to save for college is not nearly as complex as planning for retirement. While retirement strategies fill hundreds of books and fuel vigorous academic debates, new parents can be reasonably certain about one major factor in calculating how much they’ll need: when the child will attend – age 18.

“There are a lot fewer moving parts” to calculating college costs, said New Orleans financial planner H. Jude Boudreaux, who has been thinking about this issue more since his daughter, Lucy, was born about 15 months ago. …Learn More

A number of presents wrapped in dollar bill style paper.

Calculate Holiday Budget: If You Dare

Take a hard look at your holiday spending. A credit counseling agency in Virginia says it shouldn’t exceed 1.5 percent of your annual income.

How’s your budget doing? Click here to use the holiday planning calculator, courtesy of Clearpoint Credit Counseling Solutions, a non-profit agency in Richmond, Virginia.

The budget tells you how much you can spend and then divvies it up among gifts, parties, travel, food, and donations. There sure is a lot to spend your money on!

Clearpoint Holiday PlannerLearn More

A four way intersection in the desert with a red arrow labeled "You are here."

401(k)s: Reaching Young Employees

Nearly one in three employees under age 35 has not enrolled in their 401(k) retirement plan, according to almost half of the major corporations surveyed recently by Northern Trust.

It’s “imperative” that young employees save more than they do, said Lee Freitag, senior product manager for defined contribution solutions at Northern Trust, which surveyed Altria Group, Microsoft, Walgreen and other U.S. companies.

Today’s young workers will rely more on 401(k) savings than any previous generation, he said, now that employer-funded pension plans are virtually extinct in corporate America. Yet many are sacrificing their prime savings years. To retire at age 70, for example, a 25-year-old must save only 7 percent of his or her income, earning investment income over 40 years. This compared with a steep 18 percent of income for someone who waits until age 45 to start saving and has fewer years to accrue investment returns.

So, how to reach these young adults when it counts? To them, retirement in their 60s is an abstraction – they do not naturally focus on it. According to preliminary research out of the Mason School of Business at the College of William & Mary, how employers communicate may be the key to boosting savings among recent entrants to the workforce, given their long time horizon until retirement.

“We may need to communicate with younger workers differently than older workers,” Nicole Votolato Montgomery, Lisa Szykman, and Julie Agnew write in their new paper.

Their research indicates that employers can help younger employees define the steps they should take – by making them more concrete. This is a different twist on the psychology of saving found in other psychological research – when college students in one experiment saw computer avatars of their older selves, they wanted to save for their old age. …Learn More

Job Risk Dictates Rainy Day Fund Size

Financial planners have scrapped the old rules for emergency funds as the time it takes to find work has skyrocketed.

The U.S. economy picked up a little bit of steam, growing at a 2.5 percent annual rate in the third quarter. But economists expect the unemployment rate to remain stuck around 9 percent for many months.

To protect against a potential job loss, financial planners until recently advised clients to set enough cash aside to cover their expenses for three to six months. Today, six months is their starting point. And the amount of financial cushion should be based on each individual’s job security – the more risk, the bigger the emergency fund. It’s similar to the argument that an entrepreneur, for example, should balance his or her job risk by investing conservatively.

“I ask a lot about their job,” said Rand Spero, president of Street Smart Financial near Boston. “I say you need to be in a savings mode and it needs to increase substantially.”

To calculate an emergency fund, every household needs to know two things: how much fat they can cut out of their budget and how much they can expect to receive in unemployment benefits. Benefits typically cover up to half of the state’s average weekly wage. It now takes 10 months, on average, to find a new job.

Using six months as the baseline, several planners outlined the risks for various life circumstances: …Learn More

CFPB Integrates Outreach, Regulation

A top official in the federal Consumer Financial Protection Bureau (CFPB) said educational outreach to four vulnerable populations – college students, seniors, members of the military, and low-income earners – will be integral to the bureau’s research, regulatory, and legal enforcement efforts.

CFPB’s consumer division will “work with regulators to make sure people know what they are signing” and to help “clean up the marketplace” by ridding it of abusive products, Gail Hillebrand, who heads the consumer division, said at a Massachusetts Financial Education Collaborative conference held Friday at the Federal Reserve Bank of Boston.

Citing the subprime mortgage crisis, Hillebrand said it began “one mortgage at a time” – in large part due to poor disclosure by salesmen or on mortgage forms. Many borrowers who ultimately went into foreclosure failed to realize that their payments would rise sharply after the period of the initial, discounted interest rate ended. … Learn More

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