Financial Product Legalese – it’s on You

Road sign

The Center for Plain Language had this to say about the legal fine print that overran one advertisement for an investment product:

“Once again a financial institution that expects me to trust them with my money makes it impossible for me to know what they are going to do with my money.”

The Center had singled out a Charles Schwab & Co. ad for a Wondermark “award” for unintelligible writing. But the center might have been referring to any of the hundreds of financial institutions that inundate us daily with online and television ads or the credit card offers that come in the mail.

Consumers are often faulted for making poor financial decisions, but surely much blame falls on financial companies that present consumers with terms of use agreements chock full of legalese or with disclosures that are difficult to read and understand.

Financial minefields pervade all aspects of our lives too. The 2016 Wondermark awards went to Victoria’s Secret for the “mumbo-jumbo” in its lengthy credit card agreement and to a Phoenix healthcare company that offers discounts to low-income customers – but first, they must decipher the confusing chart that explains who qualifies.

The person who nominated the healthcare company for an award said its discount information “seems like a classic case of the 0.2% who understand this chart will receive 85% of the Medical Financial Assistance, but they are clearly 400% above the average American who just got out of the hospital and has 0% of a clue as to what they’re talking about.” [Oddly, this chart seems to indicate that customers with higher incomes get larger discounts.] …Learn More

college kids

Starting the College Conversation Early

Parents have finished the summer college tours with their teenagers.  Now comes the hard part: figuring out how to pay for college. But Judith Ward, a senior financial planner for T. Rowe Price in Baltimore, urges parents to prepare for this moment well before their child’s high school graduation to help minimize college costs when the time comes.

Squared Away interviewed Ward, whose advice comes from a combination of her professional experience and putting her own two kids through college. They are now 23 and 27, employed, and paying back modest student loan balances.  

Your company’s 2016 survey of parents and children between ages 8 and 14 about paying for college points to a disconnect between what young kids are expecting in terms of paying for college and what their parents are planning on.

Yes, we found in our survey that 62 percent of kids expect their parents to cover most of whatever college they want, but 65 percent of parents say they’ll only be able to contribute some to their college. There’s definitely a disconnect. But it’s easy to rectify – just start talking to your kids about college.

Question: Can parents really talk to their kids about college at 8, 9 or 10? And what do they talk about?

In fairness to the kids who answer these survey questions, they have no idea what the cost of college is. It’s not the enormous number it is to their parents. But start when they’re young by having conversations that are not necessarily about the cost of college. Just start making college part of the conversation and sharing your own stories. That will have them thinking about college and thinking, “I’m going to be expected to go to college.” …Learn More

Kids sleeping at daycare

Day Care Costs Factor into Mom’s Work

Table about daycareIn 26 states, the average cost of full-time care for just one infant at a day care center approaches or exceeds $10,000 a year, according to ChildCare Aware of America.

No wonder many new mothers (and sometimes fathers) ask themselves: Is it even worth it to work in the first place?

Proposals by both presidential candidates to subsidize care for the nation’s 11 million pre-schoolers amount to non-partisan recognition that parents need some help.

The IRS does provide a child care tax credit of up to $3,000 for one child and to $6,000 for two. But despite this, the United States lags well behind Europe in the financial assistance extended to parents of young children.

The result is that the child care costs shouldered by two-earner American families – the percent of their after-tax incomes that go toward care – are two times what parents pay in countries that subsidize care, such as Germany, Australia, Sweden, Denmark, France and Greece, according to the OECD.

A series of academic studies over more than two decades document a deep and enduring link between steep child care costs and mothers’ decisions to drop out of the labor force.

One study in 2005 found a “striking” impact on mothers when Quebec made child care for pre-schoolers affordable by putting in place subsidies for private day care in the late 1990s, which capped parents’ daily costs at $5. The program spurred big increases in child care use in the province. The study found that universal day care also significantly increased married women’s labor force participation, by 14 percent. …Learn More

Seniors

Is There a Senior Housing “Crisis”?

Headlines about how much senior housing the aging baby boom generation is going to require often include the word “crisis.”

But it might be time to rethink our dire assumption that there won’t be enough housing for seniors, since boomers are living longer and are healthier than past generations and are changing what it means to grow old in this country.

One example is the U.S. nursing home population, which has remained fairly stable even though the elderly population is growing, according to a 2010 report by the Stanford Center on Longevity. The center cited better health as a key contributing factor.

Taking trends like these into account, a California real estate services firm has raised the age assumptions it uses to project increases in demand for senior housing, defined as facilities that include some level of care. The firm, Rockwood Pacific, still expects demand to increase over the next decade but at a slower rate. After that, when the oldest boomers are starting to turn 80, demand will continue to rise but also more slowly.

“When I started in this business in the 1990s, everyone talked about the 65-plus population” and its need for senior housing, said co-founder Frank Rockwood. “Now when you go to a senior housing conference, we talk about 75-plus. I’m saying now the time’s come we need to discuss 80-plus, rather than 75-plus.”

Doing so leads to big drops in the number of potential candidates for nursing homes, memory care units, and assisted living and independent living facilities, according to Rockwood’s estimates. (Residents in independent living communities share a central dining room and tend to be healthier than people the same age who reside in assisted living facilities, he said.)

Assuming people largely won’t need senior housing until at least 80, the firm lowered its forecast of demand growth over the next decade to about 2-3 percent annually, down from 3-4 percent under the 75-plus assumption. …Learn More

Annuities Have Real Value

Woman falling on money parachute

The value that annuities can provide to retirees may not be obvious, but it is real.

Annuities are also becoming increasingly valuable as fewer people have that traditional source of reliable retirement income: an employer pension.

Insurance company annuities, like pensions, pay out a monthly income no matter how long you live. These payments come from three sources: 1) the initial amount invested to purchase the policy; 2) the interest earned on the amount that’s invested before it is paid out; and 3) “mortality credits.”

These mortality credits are the essential element that protects retirees from outliving their savings.  As a retiree moves through her 80s, a growing share of the other people in the annuity pool die.  The funds they leave behind in the pool are used to continue making monthly payments to those who are still living.

This is the starting point for a new summary of academic research on annuities by the Center for Retirement Research at Boston College, which supports this blog. To fully understand the individual studies, it’s necessary to read the report.   But here are some takeaways: …Learn More

Feature

Seniors Enjoy More Disability-Free Years

Persistent increases in U.S. life expectancy are widely recognized. But if we’re living longer, what’s also important is whether those additional years of life are healthy years.

Even using this higher standard, the news is good.

A 65-year-old American today can expect to live to about age 84 – or about one year and four months longer than a 65-year-old in the early 1990s, according to a new study. But there was a bigger increase – one year and 10 months – in the time the elderly enjoy being free of disabling medical conditions that limit their quality of life.

The researchers, a team of economists and biostatisticians at Harvard, pinpointed two conditions that are the dominant reasons the elderly are remaining healthier longer: dramatic declines in cardiovascular conditions in the form of heart disease and stroke, and improved vision, which allows seniors to remain independent and active.

The study used medical data from a Medicare survey that asks a wide range of questions about the respondents’ ability to function and perform basic tasks.  The researchers found a decline in the share of seniors reporting they have some sort of disability – to about 42 percent currently – and most of this decline occurred during the final months or years of a person’s life.

They also tried to identify the primary reasons for the health improvements, though they were cautious about these results.   Heart attacks and strokes are major causes of death in this country.  But cardiovascular disease is being treated aggressively – with statins, beta-blockers, even low-dose aspirin – and the treatments might have reduced mortality and the prevalence of heart attacks. …Learn More

Produce shelves at grocery store

Lift SNAP’s Asset Test and People Save

When a low-wage worker has a dental emergency or the car breaks down, it can set off a chain reaction of financial problems. Losing a job due to that car problem is a catastrophe.  It’s not an exaggeration to say that having just a little money in a bank account is a lifesaver.

But low-income Americans are discouraged from saving due to the asset limits in joint federal-state assistance programs such as food stamps, Medicaid, and Temporary Assistance to Needy Families. These asset limits create a Catch-22: if the recipient builds up the savings crucial to their financial well-being, they lose their assistance, which is also critical to their well-being.

This illustrates just how difficult it is to design programs to help the poor and low-wage workers.  Without asset limits, a relatively well-off person who earns very little would qualify for food stamps.  But using asset limits to restrict who qualifies can harm our most financially fragile populations.

SNAP logoNew research looking into the impact of asset limits among recipients under the Supplemental Nutrition Assistance Program (SNAP) – once known as food stamps – confirms that asset limits inhibit saving.

“Having a policy where people don’t save or draw down their assets before they apply for benefits can really harm long-term economic success for these families,” said Caroline Ratcliffe, a senior fellow at the Urban Institute who conducted the study. …Learn More

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