May 23, 2017
Paying Medical Bills is a Herculean Task
Hercules sculpture, Florence, Italy.
Medical bills are leaving “a lasting imprint on families’ balance sheets,” JP Morgan Chase concludes from its recent analysis of the anonymous checking and credit card account activity of some 250,000 bank customers.
With little available cash on hand, 53 percent of these families prepare to pay large, one-time medical expenses by waiting for an uptick in their income. Nevertheless, a year after the bill is paid, they are still struggling to patch the hole blown in their household budgets, according to the report, “Coping with Costs: Big Data on Expense Volatility and Medical Payments.”
The 2013-2015 account data show that family incomes tend to be 4 percent higher, on average, in the month a medical bill is paid. This doesn’t mean that people suddenly become Uber drivers or work more overtime hours. What is probably going on, the bank said, is that people “have delayed either receipt of medical treatment or payment of their medical bill until they were able to pay” – when the extra income arrives.
Tax refunds are one clear source of this income for paying large one-time medical bills. These payments were the most frequent around tax time, JP Morgan’s customer data show. But the $163 average increase in monthly income, mostly from tax returns, was small relative to the average $2,000 medical bill.
The damage done to family finances was apparent even a year after such bills were paid. Credit card balances, which had been reduced prior to paying the medical bill, rose for at least a year following a payment. Meanwhile, spending on non-medical purchases, as well as the amount of cash on hand, decline in the aftermath as the families struggle to repair their household finances.
This dry but compelling report is a window into the Herculean feat of paying medical bills for some families. It helps to explain why two out of three Republicans and Democrats in a Kaiser Family Foundation poll said that lowering their health care costs should be a top priority for any reform.
To read the full J.P. Morgan report, click here.Learn More
May 18, 2017
Women Get a Bigger Social Security Bump
The magic number is 35.
That’s how many years of earnings the U.S. Social Security Administration (SSA) uses to calculate every worker’s pension benefit. But 35 years can be a tall order for the many boomer women who took time off or cut back on their hours to raise their children. Nearly half of 62-year-old working women today didn’t make any money for at least one year in their earnings history on record with SSA.
But this also means they have more to gain financially than men from working longer, because each additional year of work substitutes for a zero- or low-earning year during motherhood in the benefit calculation, according to research by Matt Rutledge and John Lindner at the Center for Retirement Research, which sponsors this blog.
Beefing up one’s earnings record is actually one of the two ways that working longer raises monthly benefits. The other, more familiar way is a benefit increase from delaying collecting Social Security.
Delaying claiming compresses the time period over which workers will receive benefits. The resulting increase when they finally do start is known as Social Security’s “actuarial adjustment.” Take the most extreme example: both men and women who begin their Social Security at age 70 receive 76 percent more per month from this adjustment than they would’ve gotten had they started at 62.
But it is women who generally gain much more from additional years in the labor force.
By working to 70, rather than retiring at 62, the average woman can increase her monthly Social Security check by 12 percent, the researchers found. Adding this to the standard actuarial adjustment produces an 88-percent increase, from roughly $1,112 per month at 62 to $2,090 at age 70.
The earnings bump that 62-year-old men get from working to 70 is half as big – about 6 percent – because men typically already have had more years of higher earnings during their working lives.
A woman doesn’t have to work all the way to 70 either to benefit. Any period of delay will increase monthly benefits – and that will help. …Learn More
May 16, 2017
College Calculator Bridges Class Divide
A degree from a premier college can vault a teenager from a low-income family to the height of economic success as an adult.
To date, 15 colleges have signed on to work with Levine, who initially created the calculator for applicants to Wellesley College, where he is an economics professor.
But disadvantaged students face a multitude of barriers to attending the nation’s top colleges, from getting the grades required to withstand stiff competition for acceptance to the absence of a degreed family member who can steer a child, niece or grandson through the process.
Phillip Levine is breaking down one barrier: the well-founded fear among low-income and even middle-class families that an elite liberal arts college is out of the question.
Levine designed a calculator to estimate how much an individual applicant will actually pay, after plugging in his or her family’s unique financial data, such as income, house value, mortgage amount, etc. – and the calculator is way easier than filling out a FAFSA form. Argh.
What’s new about Levine’s cost estimates is that they come from crunching family financial stats into a program that contains an individual college’s unique information about its financial aid and work-study programs, as well as how much current students pay based on their parents’ financial information [these data are supplied anonymously to Levine]. …Learn More
May 11, 2017
Get Paid What You’re Worth
“No one will ever pay you what you’re worth,” Casey Brown says in the Ted video above.
An employee’s value is also highest when unemployment is as low as it is now – 4.4 percent in April – and employers are scrambling to fill jobs.
Why would an employer pay more than it has to? With unions all but extinct, the burden falls on individuals to ensure they’re paid fairly or well. Low unemployment provides workers with more leverage to get what we deserve. Unfortunately, many of us are not good at negotiating how much we earn. Or we avoid it entirely, because we’re uncomfortable with talking money – especially women.
Women “say things like, ‘I don’t like to sing my own praises,’ ” Brown notes.
One time-honored way to test the waters is to get an offer for a job you might like that pays more than your current position. If your current employer values you, they’ll increase your pay to keep you. It can be a risky strategy. In our free-wheeling labor “market,” however, it’s also the best way to learn what you’re worth, because there is only general information about compensation for different types of jobs.
In fact, management researcher David Burkus argues that the U.S. compensation system is built around secrecy. “Keeping salaries secret leads to information asymmetry … [and] an employer can use that secrecy to save a lot of money,” he says in another Ted video. Translation: a lack of information makes it easier to under-pay you.
Unions know this. Historically, unions posted compensation in the different job tiers in each industry so workers would know what they were entitled to.
In place of unions, Elaine Varelas, recruiter for Keystone Partners in Boston, suggested other places to get this critical information: glassdoor.com, job recruiters, LinkedIn contacts, and even human resources executives at friends’ firms who might provide you with salary ranges.
“People owe it to themselves to do their homework and stop hiding under the discomfort,” Varelas says.
So get out there and learn something that will definitely be interesting – and possibly lucrative! Learn More
May 9, 2017
Retirement Ball’s in Employers’ Court
If employers want to improve the poor retirement prognosis for a large chunk of American workers, there are some obvious things they could do.
That’s the big takeaway in Morningstar Inc.’s new report on employers that offer 401(k) plans to their employees but don’t do what’s required to encourage them to save enough.
During the early 2000s, automatic enrollment to increase participation in employer 401(k)s became all the rage, and the strategy has proved itself. Today, nearly 90 percent of automatically enrolled employees stay where they are put, while only about half of workers sign up to save when 401(k) enrollment is strictly voluntary.
But the auto enrollment trend has stalled, and the crazy-quilt private-sector retirement system still has a lot of holes in it. Even when companies automatically enroll their workers, the plans are often designed in ways that discourage them from saving enough, Morningstar’s David Blanchett, head of retirement research, concludes in his report.
“Too often the focus among plan sponsors is improving [401(k)] participation,” he writes. The plans themselves have left us “with low and inadequate savings rates that threaten the retirement security of many Americans.”
At least there’s something to be improved upon: many private-sector employers don’t even offer retirement plans, particularly in industries when people earn low-incomes or work for small companies.
Blanchett’s critique of plans already in place rightly leans on groundbreaking academic research a decade ago that tested 401(k) plan design to determine what drives employee participation in the plans and drives how much they’ll agree to save.
Take plans with auto-enrollment. His analysis of T. Rowe Price and Vanguard client data found that 3 percent of salary remains the most popular savings rate that employers default their workers into during automatic enrollment in the plan – but 3 percent is widely viewed as inadequate if a worker wants to have enough money to retire on.
Why so low, Blanchett asks, when people might accept more? …Learn More
May 4, 2017
Our Stubborn State of Financial Illiteracy
The U.S. retirement system is built on people having a working knowledge of finance. Yet financial literacy among a big chunk of Americans ranges from unimpressive to abysmal.
This revelation was again confirmed in a survey that recently debuted by financial literacy guru Annamaria Lusardi, head of the Global Financial Literacy Excellence Center at George Washington University. In a 2011 survey, Lusardi had found that too many Americans were unable to answer three very simple financial questions.
This new survey is more ambitious, though the results are no more promising. It asks 28 questions in eight areas: earning money, budgeting, saving, investing, borrowing, insuring, understanding risk, and information sources. In the nationally representative survey, about one in four people got no more than seven answers (25%) correct.
One telling finding is that the highest scores were for knowledge about borrowing, with nearly two out of three answering these questions correctly. I suspect this knowledge has been gained from experience – experience with high-interest credit card bills and onerous student loan payments, as well as mortgages.
In every other financial topic surveyed, about half or less answered the questions correctly. Questions about risk, which is at the heart of many financial decisions, fared worst – only 39 percent answered these correctly.
An important connection is made in the report regarding 18- to 44-year olds, who answered only 41 percent of the questions correctly (versus 55 percent for people over 45). Younger adults also answered “I do not know” most often.
When it comes to retirement, those who would gain more from financial knowledge are the least knowledgeable. Saving that starts in early adulthood can go a long way toward achieving retirement security, thanks to compound investment returns over the many years remaining prior to leaving the work force. It’s unfortunate that those who could benefit from compounding often don’t comprehend its effect. …Learn More
May 2, 2017
Online Goblins Want Your Money
No longer simply a convenience for shoppers, the internet has come into its own: it is now an ingenious tool for squeezing money out of our wallets.
This realization first struck me last year while helping my brother and his wife in Chicago with a flight to visit our mom in Orlando. The reason I was on the case is that he’s a bit of a technophobe. But it turned out that his technical skills weren’t the issue – the airline’s website was the issue.
To flyers’ chagrin, most airlines are now a la carte operations, charging separate fees for everything from baggage to potato chips. This makes it difficult to compare fares online – one way we might wind up paying more. But things went wildly astray for my brother when he clicked on one airline’s website icon to pay his and his wife’s baggage fees a few days before flying.
He was hurled off to a webpage beseeching him to join some type of $200 promotional program that included “free” baggage. The same thing happened when I tried the next day. It took all of my online ingenuity to figure out how to avoid the promotion and pay only their $30 per bag fees. I wondered whether other flyers had been sucked into paying for this promotion.
These website diversions are different from what has become routine: advertisements popping up that try to get you to take the plunge and buy the consumer product you were researching online yesterday. It’s difficult to ascertain which diversions are cynical marketing ploys and which ones are innocent technical glitches. But all of them have the potential to be costly to unwary consumers.
During a brunch on Easter Sunday, two friends confirmed my concerns that this isn’t just an issue for older people – one of my friends who complained about online trickery is 95 years old but the other is a tech-savvy college freshman.
All web crawlers are familiar with offers of free subscription trials. These are also dangerous. …Learn More