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U.S. Renters “Financially Fragile”

A new report by the FINRA Investor Education Foundation finds “a financially fragile renter population relative to homeowners.”

It’s hardly surprising that apartment dwellers who rent are worse off financially than homeowners. It takes money to buy a house.  But things got markedly worse for renters after the Great Recession. Millions of homeowners, foreclosed on by their lenders, were thrown back into the market for apartments, driving up rental rates and squeezing all renters.

A new FINRA Foundation report, “American Renters and Financial Fragility,” dramatizes the growing rift between the nation’s haves and have-nots through a comparison of owners and renters.

Click on “Learn More” below to see a FINRA Foundation chart contrasting the personal financial situation for renters versus homeowners, based on a 2012 survey.  The jobless rate has declined since then, but the rental market has only tightened. Rents have continually increased in recent years, reports Reis, a real estate tracking firm. And 85 percent of property managers nationwide reported they raised rents over the past year to capitalize on a decline in the number of vacant rental units, which continues in 2014, according to Rent.com. Housing costs in particular are becoming a burden for a growing numbers of older Americans. …Learn More

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A Thriving Underground Money Culture

Recent immigrants – whether from Mexico, Africa or China – often form groups that regularly contribute to a pool of money. Group members then take turns pulling out $500 or $1,000 in accumulated cash.

These savings groups are one aspect of a pervasive underground money culture bustling beneath the surface in U.S. communities of immigrants and other low-income workers.

Savings groups are one of four types of “informal” financial arrangements identified in a new report, “An Invisible Finance Sector: How Households Use Financial Tools of Their Own Making.” These arrangements create a strong social commitment to saving typically absent in the formal U.S. banking system.

The four arrangements discussed in the report are:

  • Savings groups, also known as lending circles, which are primarily found in immigrant communities.
  • Interpersonal loans.
  • Storing more than $100 in cash at home.
  • Money guards who safeguard someone else’s savings. …

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Financial Guides Come in Many Languages

The federal government has added two Spanish-language guides to its multilingual library printed in languages ranging from French to Tagalog, the language of the Philippines.

The Spanish guides (previously available in English) – “Money Smart para Adultos Mayores” (“Money Smart for Older Adults”) and “Cómo Administrar el Dinero de Otras Personas” (“Managing Someone Else’s Money”) – teach seniors and their caregivers how to spot scams and frauds and help caregivers to understand their financial duties.

They are all free of charge and published by the Office for Older Americans in the Consumer Financial Protection Bureau (CFPB).

Other topics also appear in the CFPB’s online table of contents, which permits consumers and financial planners to search by language or by subjects including money management, credit, and mortgages.

Booklets in Chinese and other languages explain the safest ways to send money back home. Mortgage booklets are available in Chinese, French, Haitian Creole, Korean, Tagalog, and Spanish. They explain borrower’s rights, including the additional requirements for lenders’ disclosures to borrowers put in place in the wake of the subprime mortgage meltdown, which also affected immigrant neighborhoods. The Spanish booklets include one on reverse mortgages for retirees.

The library’s table of contents is available here – it requires clicking around to find out what’s available in each language.Learn More

Videos Critique Active Stock Investing

This is the sixth video featured in a series of seven that are worth watching.

The new series, “How to Win the Loser’s Game,” takes viewers on an in-depth tour of the financial industry landscape while managing not to be dull.  It includes a history of academic research in the finance field and examines the issue of paying high fees for active investment managers.

The big message in the above video has also been covered on this blog: it’s virtually impossible for active managers to consistently outperform the overall market’s return. The solution: buy passive mutual funds and diversify. The evidence presented in the videos, sometimes by academic giants in the field, is compelling.

Click here to watch the remaining videos, which are produced by sensibleinvesting.tv, a non-profit founded by a U.K. financial company.Learn More

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Primer: Home Equity → Retiree Income

Americans who are 62 or older had an estimated $3.6 trillion in total equity locked up in their homes in the first quarter of 2014, according to the National Reverse Mortgage Lenders Association. A new primer suggests they should start thinking seriously about using it to generate some extra retirement income.

The primer, published by the Center for Retirement Research at Boston College, which sponsors this blog, discusses two ways retirees can use home equity to generate income: by downsizing into a less expensive house or condominium or by taking out a reverse mortgage.

Click here to read the booklet online and learn how these strategies work and how much money each can provide.  Their pros and cons are detailed in the graphic below, excerpted from the booklet:

Learn More

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Debit Card Beats Cash as Budgeting Tool

Plastic or paper?  Americans have spoken.

In 2013, they made $4.1 trillion in purchases on their credit and debit cards, according to the Nilson Report – and that figure keeps marching upward.

Some researchers view this as a dangerous trend.  Plastic cards, they contend, put distance between a man and his bank account. Without the tactile sensation of handing over one’s hard-earned cash, it’s easy – too easy – to spend money and harder to save.

New research out of The Netherlands has an entirely different take on the cash versus plastic debate. The study, based on a detailed Internet survey of nearly 1,500 Dutch people about their financial habits, shows that they view the debit card “as the better expense monitoring tool.” (The study compared cash and debit cards, excluding credit cards.) …Learn More

Seniors’ Housing Cost Burden on Rise

For a growing share of older Americans, housing expenses have become an increasingly large financial burden.

Chart: Housing burdenOne in three Americans over age 50 were carrying a severe or moderate housing cost burden in 2012, up from one in four in 2000, according to a new study by Harvard’s Joint Center for Housing Studies and AARP. The Center defined a severe burden as housing costs that consume more than half of household income; a moderate housing burden takes between 30 percent and 50 percent of income.

The Center’s report, Housing America’s Older Adults – Meeting the Needs of An Aging Population,” warns that the nation is unprepared for both the financial and non-financial housing challenges that will accompany the coming explosion in the elderly population. Aging baby boomers will require better access to public transit, handicap access, assisted living facilities and other special services and amenities, and many will need subsidized housing.

Housing is often an older person’s largest single expense. And because housing costs are largely fixed (think mortgage payment, taxes, insurance, upkeep and utilities), they can become a growing burden for people as they age and become more vulnerable to reductions in income. Incomes often decline toward the end of their working years and decline again when they enter retirement. Pensions and Social Security benefits fall again when one spouse dies.

The report finds that: …Learn More

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