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Home Buying Not Tied to Student Debt

A popular assertion these days is that young adults paying off student loans can’t afford to buy a house. This might be the financial equivalent of Chicken Little.

Contrary to concerns that the sky is falling – or, rather, the first-time homebuyer market is falling due to student debt – a new study finds very little evidence to support this view.

The researchers tracked the home-buying behavior of more than 5,000 college-going young adults for a full decade through the National Longitudinal Survey of Youth. They confined the analysis to people who attended college – graduates and non-graduates alike – in contrast to previous research that compared the behavior of all young adults and found that borrowing got in the way of homeownership.

The new study actually found they were slightly more likely than non-borrowers to purchase a house. But this could be due to the fact that the borrowers tended to be the type of people who persist and complete their degrees, attend more expensive schools, and possess other socioeconomic advantages. This comparison of borrowers and non-borrowers still didn’t settle the question of whether the probability of owning a home actually decreases as the level of student debt rises.

When the researchers further narrowed the analysis only to individuals who held student loans, they found no relationship between the amount of money borrowed and the probability of homeownership. “If you have $30,000 in debt you’re no less likely to buy a home than if you have $3,000 in debt,” said one of researchers, Jason Houle, an assistant professor of sociology at Dartmouth College.

The findings, Houle said, “cast doubt on this idea that student loan debt is dragging down the housing market.” …Learn More

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In Support of Allowances for Kids

With summer’s chaos subsiding and school starting, it’s time for a financial lesson wrapped in an allowance!

The conventional wisdom behind a weekly allowance is that it impresses on children the limited value of a dollar.  But the benefits of financial education are not well-founded in academic research. The benefits of an allowance might have something to do with kids’ confidence in handling their money, which research shows is central to how well adults manage their finances.

Kids between ages 8 and 14 who get an allowance were two times more likely to feel knowledgeable about managing their money than kids who do not – 32 percent versus 16 percent – according to a survey of 1,000 parents and 881 children by T. Rowe Price.  The kids with allowances also feel they know more about credit, student loans, and other financial matters. …Learn More

Medicare Hotline Complaints Detailed

Last month, Squared Away published a primer for new Medicare enrollees choosing between their two available options: an Advantage plan or traditional Medicare plus a Part D drug plan and/or supplemental Medigap policy.

Millions of beneficiaries receive their Medicare benefits without any major problems. But Medicare rights center logotoday’s blog is about a report detailing complaints to the national telephone hotline operated by the Medicare Rights Center, a non-profit patient advocacy organization.  Two of the top issues reported by seniors were denials of coverage and rocky transitions from employer or other health insurance into Medicare.

Here are some of the findings:

  • 60 percent of calls about Advantage plans involved denials of coverage for physician care, home care, therapy, medical equipment, tests and other services. Some calls about coverage denials also involved traditional Medicare. However, in contrast to private Advantage plans, Schwarz said that private Medigap plans must follow Medicare’s lead in determining what’s covered.  “If Medicare pays, then Medigap pays,” she said.
  • The majority of denials of drug coverage involved medications not on the list approved by the senior’s drug plan.This primarily affects either seniors starting new medications or new plan enrollees who learn that their plan doesn’t cover all their medications.  Advantage and Part D drug plans are not permitted to deny coverage in the middle of a plan year if they’ve been covering a drug for a specific medical condition, unless the drug is removed for a specific reason, such as the appearance of a new generic.  They can, however, remove the drug from the list when the senior’s annual policy expires, Schwarz said. …

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New Online Financial Resources

Squared Away periodically alerts readers to information online that might be useful to them.  These three crossed the transom in August:

  • Natural disasters quickly turn into financial disasters. On Hurricane Katrina’s 10th anniversary, the National Endowment for Financial Education and other organizations have released a guide, Disasters and Financial Planning.  The guide includes tips on how to insure properly against hurricanes, floods, or forest fires and how to hire contractors to make repairs after disaster hits.
  • The U.S. Social Security Administration posts a raft of brochures online to explain everything from how to get your newborn’s Social Security number or replace your old one (citizen or non-citizen, international students) to disability information for veterans. There’s also information on federal benefits many people may be unaware of. For example, low-income Medicare enrollees can apply for extra help – up to $4,000 per year – to pay for their prescription drugs. Many of the brochures come in multiple languages, including Somali and Vietnamese.  Click here to see the full list of publications on socialsecurity.gov.
  • The Center for Financial Services Innovation’s Consumer Financial Health Study sorts Americans into four financial states: “unengaged,” “tenuous;” “at risk,” and “striving.”  They’re characterized by typical behavioral characteristics of how they handle – or fail to manage – their finances. For example, the unengaged typically “do not know how much their monthly debt payments are.” …

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This Retiree Is a Lucky Dog

It would be even tougher for Sher Polvinale to get by solely on her late husband’s Social Security check of $1,700 per month if he had not bought a life insurance policy that has paid off their house.

Despite her meager financial circumstances, Polvinale’s retirement is rich in rewards.

This 69-year-old former payroll administrator for a construction company said she brings in $200,000 in annual donations for her non-profit, which cares for old, unwanted dogs that need expensive medical care and attention. One can’t help thinking, while watching the National Geographic video below about the retired dog sanctuary in her home, that many elderly people would be lucky to have such a place to live out their final years.

For financial or lifestyle reasons, not everyone settles into a full-blown retirement. Some people refuse to retire altogether, while others try out retirement only to resume working, perhaps in a part-time position. Polvinale’s is one of the myriad stories of how individuals adapt and recreate their lives as they ease into old age and detach from the hard-charging work world.

“I’m kind of an odd person,” said Polvinale, explaining what motivated her to establish the non-profit in 2006. She recalls telling her husband, Joe, who would die in 2008, “I can’t agonize over whether people are going to love their dog until the end of its life. I want to keep them until they die. That’s selfish but I want to know that they’re safe and loved for the rest of their lives.” …Learn More

Workplace Benefit Inequality

Inequality goes beyond the wealth and income disparities that frequently make it into today’s headlines. Employer benefits also flow more freely to people at the top.

The newly released survey of employers by the U.S. Bureau of Labor shows how stark the differences are.

The charts below compare the share of private-sector workers in the lowest income bracket who receive benefits – their earnings are in the bottom 25 percent of all U.S. workers’ earnings – with the share in the top 25 percent. Four benefits are compared: health insurance, the percent of health premiums paid by employers, paid sick leave, and – since it’s August – paid vacations.

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For the other charts, click here.Learn More

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Paying Extra on College Debt Has Wallop

One-third of 18-24 year olds in a new Allstate poll said the best use of their extra funds is getting their college or other debts off their backs. For those considering making larger payments, a loan amortization table demonstrates the impact.

Paying down debt is just another form of saving, and larger loan payments significantly shorten the time it takes to pay it off, while reducing the total interest paid. Start with the $5,000 loan example already loaded into a Bankrate.com student loan amortization calculator:

  • Paying $96.66 per month on a $5,000 student loan with 6 percent interest eliminates it in five years. An extra $50 every month – a couple of nights out – knocks two years off the payment time. This can be seen by entering $50 in the top box under the “Extra payments” heading in the calculator and clicking “Show/Calculate Amortization Table.” …

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