Millennials, now in their 20s or early 30s, are ethnically more diverse and better educated than any previous generation. They also demonstrate different financial behaviors that may partly reflect new trends in society and in technology.
Millennials’ financial struggles are a natural consequence of being new entrants to the labor force. Two-thirds of them earn less than $50,000 annually, and they are more likely than Generation X (now mostly in their 40s) to spend more than they earn, according to the FINRA Investor Education Foundation’s newly released survey of some 25,000 adults of all ages.
But FINRA’s survey provides clues to the financial habits that may set Millennials apart from previous generations:
More than one in three has taken on debt for college. The share rises to half of Millennials who are either full-time or part-time students.
Millennials are slightly more likely than prior generations to be offered financial education and to participate in it. Millennial men have higher financial literacy than their female peers, but this gender gap has shrunk from prior generations. This improvement still might not offset the greater need for financial capability, due to their higher student debt levels. …
About 15 percent of Americans age 65 and over are poor, according to the federal government’s alternative definition of poverty, known as the Supplemental Poverty Measure, a yardstick that takes into account seniors’ out-of-pocket medical expenses, as well as income and tax effects not included in the standard measure of poverty.
A compelling new video profiles poor older Americans who live in Baltimore, rural West Virginia, and Los Angeles. In the video, produced by the Kaiser Family Foundation, a non-profit research and policy organization focused on health care, the seniors identify rising rents and medical expenses as major explanations of financial hardship, which can mean lacking enough money for food.
Squared Away also has interviewed seniors living in a Boston housing complex for low-income seniors. To hear their stories, click here. Learn More
Fully 71 percent of adults identified money concerns as their single biggest source of stress in 2013, according to the American Psychological Association’s annual Stress in America report, derived from surveys by Harris Interactive. The good news is that this money-stress indicator has declined from 76 percent in 2010, in the wake of the Great Recession.
But the runner-up sources of stress are also closely related to money: work caused stress in 69 percent of adults surveyed, and “the economy” was identified by 59 percent.
Women are slightly more stressed than men. Could it be because women earn less, on average? On the other hand, more men than women still have responsibility for being the primary breadwinner. …Learn More
Tatiana Andrade (standing), an ambassador for American Student Assistance, hosts a Jeopardy match to educate classmates about their student debt.
College students usually plan on repaying their loans after graduation, when they’ve landed a full-time job. Freshman Tatiana Andrade is making payments while she’s still in school.
Andrade is already $14,500 in debt. She’s on track to owe some $60,000 when she completes her four-year degree at Stonehill College outside Boston, even though her parents are sharing the cost. To chip away at her debt, she pays off between $100 and $150 per month from her earnings in a part-time job.
Andrade is among a slim but growing minority of students and recent graduates becoming proactive to get control of their student debt – before it controls them. She advises classmates to do the same as Stonehill College’s ambassador for the non-profit American Student Assistance (ASA), which has a program and website – SALT – aimed at educating and counseling students on strategies to minimize how much they borrow and to manage their loan payments.
Making loan payments today minimizes the total amount she’ll pay in the future for three reasons. Loans paid immediately carry a lower interest rate than loans that permit her to defer payment until after graduation. She’s cutting down the total amount she’ll have to pay back after graduation. She said she also avoided a loan-origination fee required on deferred loans equal to 4 percent of the loan.
“Every dollar counts,” she said. Waiting until graduation “is the worst thing you can do.” …Learn More
If postponing retirement can improve one’s financial security in old age, why do so many people rush to retire when they reach age 62?
Much research has explored the financial and health reasons that explain why so few people choose to retire later. Taking a different tack, a new study found that individuals with higher cognition foresee a higher probability of working longer.
There were two steps to this research.
First, participants in an Internet survey were asked if they planned to continue working full-time after age 62 and, separately, if they expected to work past 65. Participants were between the ages of 45 and 61.
Next, the researchers measured each survey participant’s “crystallized intelligence,” which is the wisdom acquired with age. This type of intelligence helps to compensate for declining “fluid intelligence” – the ability to think quickly – which peaks in young adulthood. To measure their crystallized intelligence, participants took a standard psychology test in which they are shown pictures – perhaps a goat, maracas, a sextant (an astronomical instrument) – and asked to name them. …Learn More
Did you know that an investor may be more likely to hold on to a money-loser if he bought it himself than if he inherited it? That people born with the “warrior gene” will take more risks? Or that trust is essential to whether individuals prepare for retirement?
A new edited volume, “Investor Behavior: the Psychology of Financial Planning and Investing,” is a thorough tour of the research on these and other aspects of behavioral finance. The book was compiled for financial planners, investment professionals, academics, and finance students and edited by two finance professors, H. Kent Baker of American University’s Kogod School of Business and Victor Ricciardi of Goucher College.
The field of behavioral finance is gaining traction as financial experts increasingly recognize that psychology, sociology, neurology and other fields may have something to say about why people behave the way they do around money.
Traditional theories explaining investor behavior, such as modern portfolio and utility theory, assume that people make “rational” choices. In contrast, the research covered in this new book tries to explain why financial decisions are not always rational, are often infused with emotion, and can be very predictable. Or, as 1978 Nobel laureate Herbert Simon once explained, orthodox finance’s “traditional paradigm did not describe the behavior of real people,” the book says. …Learn More
When older workers are weighing whether to retire or carry on for a few more years, it’s unsurprising that the characteristics of their jobs are a big consideration:
Higher pay keeps workers in the labor force longer.
Workers who feel discriminated against are often the first to retire.
But personality also matters, says a team of researchers from the University of Southern California (USC) and the RAND Corporation who analyzed data from the Health and Retirement Study, an on-going survey of age 50-plus U.S. households.
Consider two types of personalities – highly active and engaged, and passive and reserved. The researchers found that higher wages are effective in persuading more passive people to continue working. But monetary rewards are, for highly active workers “a less important driving factor for the decision to remain in full-time employment,” said Marco Angrisani, one of the study’s co-authors from USC’s Center for Economic and Social Research. Active workers will continue to work, simply because they like it or feel compelled to keep busy. …Learn More