Chart: U.S. Credit Card Balances

Credit Card Act Increased Payoffs

Government policies often seek to alter human behavior: a 2009 tax credit for first-time homebuyers, for example, encouraged more people to buy houses.

Now research has determined that the first federal update since 1968 to the interest rate disclosures on credit card statements has changed card users’ behavior for the better.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD) increased the number of users who pay off their bills each month, from about 60 percent prior to the act, to between 64 and 69 percent currently, concluded Cornell University doctoral student Lauren Jones, Ohio State University professor Cäezilia Loibl, and Cornell professor Sharon Tennyson.

They also found that the size of card holders’ payments, relative to their debt levels, increased, and that fewer card users are paying only the minimum. Their findings, though somewhat mixed, provide support for the increasingly popular notion that more precision and clarity in financial-product disclosures can be effective.

Their research controlled for the effects of the Great Recession and its aftermath, when consumers slashed their debt; in other words, card holders improved their behavior on top of the belt tightening forced upon them by lower wages, unemployment and other recessionary impacts. A previous report also suggested that other provisions of the CARD Act that made it more difficult for college students to obtain credit cards have curbed card use on campus.

However, Jones cautioned against being complacent about CARD’s impacts, because they are “positive and significant” only for a subset of credit card users. …
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money in a tin

Public Perplexed About Annuities

Sales of annuities are slow, because most retirees simply don’t know how to assess their value, new research concludes.

Many of the nation’s top retirement experts agree that annuities are the best solution for retirees struggling with the best way to invest and spend a lifetime of savings.

Annuities have a singular benefit: they guarantee monthly income, no matter how long the retiree lives – something a savings account can’t always do. This constant, pre-determined stream of income has the added advantage of preventing financial mistakes as the elderly lose cognitive capacity, according to Harvard economist David Laibson. Smart Money magazine has dubbed annuities “dementia insurance.”

Yet sales of fixed and variable annuities have been largely flat over the past decade. This “annuity puzzle” has befuddled the academy for years.

Research by the Financial Literacy Center, a joint effort by George Washington University, the Wharton School, and the Rand Corporation, concluded that most people avoid annuities – they “stick to the status quo” – because they don’t understand how they work.

“How can they make these decisions if they don’t understand what a good decision is?” said a Rand senior economist and one of the paper’s co-authors, Arie Kapteyn. “We have to do something about the fact that people have to make these decisions” about managing their retirement wealth. … Learn More

Edited Volume of Research – and More

Resources that may interest Squared Away readers keep coming over the transom. Check out new federal guidelines on what to ask a financial adviser or broker, an edited volume of academic research on financial literacy and behavior, iPhone investment apps, or a summer financial thriller.

On Interviewing Financial Advisers:
Is hiring a financial adviser or broker daunting? How do you know you can trust him or her? These are complex issues, but the U.S. Department of Labor has just released a list of questions that provide a good start to your search. And click here for more such questions, based on research by Boston University law professor Tamar Frankel.

On Financial Behavior Research:
Douglas Lamdin, an economics professor at the University of Maryland Baltimore County, compiled an edited volume of research papers about financial education and behavior, “Consumer Knowledge and Financial Decisions.” The table of contents sorts issues by age groups, starting with “Cognitive Development and Children’s Understanding of Personal Finance” and ending with “Financial Preparedness for Long-Term care Needs in Old Age.” …Learn More

Boomers May Stop Work Because They Can

Baby boomers who’ve left the labor force in their pre-retirement years are in better financial shape than they once were.

The wealth of non-working Americans between ages 55 and 61 increased from $83,000 in 1992 to $98,000 in 2008, according to new research from the Urban Institute in Washington.  (Comparisons are in constant dollars.)

Potential explanations for this trend range from greater U.S. inequality that launched more boomers into the top wealth tier to a rise in the numbers of married men who don’t work – but have wives who do.

Barbara Butrica, a senior research associate at the Urban Institute, said her study did not look into the “why” for the emerging group of voluntary non-workers who are approaching traditional retirement ages, married and single men in particular.  One possibility, she said, is that “they are leaving the labor force because they can afford to.” …Learn More

Read That Social Security Statement!

This week, the federal government put every worker’s Social Security statement online. But while most people look at their statements, research shows that more than one in three misses this major point: the longer one waits to file, the larger the monthly retirement check will be.

We’re talking big numbers: someone eligible to receive $1,000 a month at the popular retirement age of 62 can get $1,333 by waiting until 66 and $1,760 by waiting until 70. Of course, one’s health, financial resources, and life events may make filing later difficult or impossible. But getting the information is critical to making a smart decision, which plays a major role in one’s financial well-being in retirement.

The Social Security Administration (SSA) put the statements online after creating a minor news flap last year when it stopped sending them via snail mail to workers. In February, SSA resumed the mailings to Americans age 60 and older. (Full disclosure: SSA funds this blog through the Center for Retirement Research at Boston College.)

Back to the point: The statements are now easily available on ssa.gov to individuals willing to provide some personal data – the site verifies the personal data they enter online against information held by the credit scoring company, Experian.

Here are a few other things about Social Security that might surprise you. According to various research papers that seek to understand how Americans view their benefits: …Learn More

Academics Question Stock Investing

The Standard & Poor’s 500 index has soared 27 percent since October! These times of strong market gains are the brass ring for a large swath of well-educated, well-off Americans.

But recent academic research on three topics – value investing, the record of individual investors, and the usefulness of investment advisers – raises serious questions about buying individual stocks or actively invested stock funds.

The upshot of this research, it seems, was neatly summed up by Nobel Prize-winning economist Daniel Kahneman’s bestseller, “Thinking, Fast and Slow:” stock picking “is more like rolling the dice than like playing poker.”

The papers are complex (though not difficult to read), so here are synopses and links to them: …Learn More

Father and son cooking together

The Family That Dines Together…

New research adds a dash of spice to our understanding of how people handle their personal financial matters: families who dine together grow wealthy together.

Three professors at the University of Georgia have discovered that families who commit to gather regularly around the dinner table – or, presumably, dine out or cook together – are better prepared financially and will accumulate more wealth faster.

As with any statistical analysis, their research can’t prove cause and effect.  Is it that dining together causes wealth to go up, or is that families who know how to handle their finances also tend to be the type of people who enjoy meals together?…Learn More

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