Photo: Peas in rows and columns

Compulsive Spender? Blame Your Parents

There’s a bright line between an impulse purchase and compulsive spending.

When something new catches her eye, the impulsive buyer snaps it up and enjoys the splurge. There is no such enjoyment for the compulsive buyer. The act of buying temporarily alleviates her anxiety but she inevitably feels guilt or regret.

A new study explores the childhood experiences that lie at the root of why some people – women more than men – develop these damaging spending problems, which can lead to enormous debts and derail plans to save for the future.

The specific goal of the study, based on surveying 327 college students, was to shed light on the emotional pathways that can lead to compulsive buying, explained researcher Anil Mathur, a marketing professor at Hofstra University. The experiences the researchers associated with this behavior include disruptive family lives, more controlling parents, and teens who seek out peers to support their spending. …Learn More

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Dementia Prevention

There are now two reasons to postpone retirement.

The financial reason has been covered repeatedly in this blog: working longer increases a retiree’s savings and monthly Social Security income, while shortening the number of retirement years that their savings will have to fund.

If that doesn’t convince you, here’s the other reason: working longer may prevent dementia.

That’s the conclusion of a study on nearly 430,000 French retirees. After analyzing their health and insurance records, the researcher determined that each additional year an older worker remained in the labor forced further reduced the risk of being diagnosed with various forms of dementia, including Alzheimer’s disease. …Learn More

Graphic: Thinking wires in brains

Social Security Claiming and Psychology

It’s common for people to begin collecting their Social Security benefits soon after they turn 62, ignoring the financial planners and retirement experts urging them to postpone and increase the size of their monthly checks.

A new study has uncovered four powerful psychological traits that influence this decision: the individual’s expected longevity, his fear of loss, whether he perceives the Social Security system as fair, and patience.

The study surveyed some 3,000 people, primarily in their 40s and 50s. This is a good age to ask about Social Security, because claiming the benefit is a few years away, “but they’re thinking more about it,” researcher Suzanne Shu said when presenting the findings at an August meeting of the Retirement Research Consortium in Washington.

In an online survey, Shu, who is from the University California at Los Angeles, and John Payne, from Duke University, posed a series of questions designed to understand the psychology of the individuals they were studying. They also asked when they planned to claim their Social Security and then determined which psychological traits were linked to those who said they planned to file early.

Four influences on claiming came out of their preliminary findings:

Fear of loss. People who have a stronger aversion to financial loss also tended to say they would claim earlier. To them, the researchers said, a delay in receiving their benefit checks “looks like a potential loss.” …Learn More

Photo: Modern house with pool

Nearly Retired, Lugging a Mortgage

Traditionally, the picture-perfect retirement included a paid-off house. But the Me Generation isn’t sticking to the script.

Snapshots of three generations of U.S. households on the cusp of retirement – people born in the Depression, at the beginning of World War II, and after the war – show that more of the most recent generation, the baby boomers, are still carrying mortgages as they head into their retirement years.

About 40 percent of households who were between the ages of 56 and 61 in 1992 – the Depression-era parents of baby boomers – held mortgages at that age. This share had increased to 48 percent by 2008, as the front wave of baby boomers were reaching their late 50s and early 60s

“The current generation has bought larger, more expensive homes, and they arrive at retirement with more mortgage debt,” concluded George Washington University business professor Annamaria Lusardi, who presented the findings of her study with Olivia Mitchell of the Wharton School during an August meeting of the Retirement Research Consortium. …Learn More

Make-up of Non-Bank Customers Changes

Nicole DeConinck. Photograph by Adele M. Pleatman.

Having cashed her McDonald’s paycheck at a check cashing outlet in Boston’s South End neighborhood, Nicole DeConinck has completed one half of her Friday afternoon ritual.

She will now walk to a nearby pharmacy to purchase a debit card, which she’ll use to make her purchases.

More Americans like DeConinck say they have used non-traditional financial services, such as check cashing, or are getting loans from places like pawn shops, payday lenders, or firms that offer advances on IRS refunds. In 2011, 41 percent had, up from 36 percent in 2009, according to the Federal Deposit Insurance Corp., which insures U.S. commercial banks.

One thing fueling this growth is that non-bank loans, which are ready sources of cash, are reaching new segments of the American public, according to a recent analysis of the FDIC’s data by Gregory Mills and William Monson of the Urban Institute in Washington. Once associated with minorities, immigrants and low-income workers, they found they’re more prevalent among non-Hispanic whites, college graduates, and people who earn more than $50,000.

“It’s a measure of the extent of distress throughout the American economy that more and more individuals regarded as insulated from having to turn to these kinds of borrowed funds are now having to access them,” Mills said. …Learn More

Workers Struggle Day to Day

There’s a growing concern that working people aren’t saving for the future, but the reality is that many of them can barely get by in the here and now.

A sizable minority of Americans say they are spending more than they earn, have overdue medical bills, or pay only the minimum on their credit cards. These were among the findings in the 2012 National Financial Capability Study (NFCS) conducted by the FINRA Investor Education Foundation, its second survey to illuminate the day-to-day financial issues facing average working people.

Pulling together $2,000 may seem like only a modest challenge for someone with good pay and benefits. But 40 percent of the people surveyed also indicated they would be hard-pressed to find that much money if they needed it, according to a September report on the NFCS survey.

FINRA identified indicators of what it called the “financial fragility” of the average American:

• More than half of those surveyed were in a poor position to save: 19 percent spend more than they earn, and 36 percent just break even.

• More than half have no rainy day fund and live paycheck-to-paycheck. …Learn More

Photo: Swedish flag

Swedish Retirees Spend More Freely

Americans are known for being reluctant to spend their life savings after they retire. The burning question has always been why.

New research comparing tight-fisted Americans with more free-spending Swedes found that U.S. retirees tend to hold on to their savings, because they face more risk of having to pay high out-of-pocket costs in the future for their medical and long-term care.

U.S. households, by the time they’re in their late 80s, have tapped only about one-third of the net worth they held in their late 60s, according to the study. Swedish households in their late 80s have spent more than three-fourths.

In preliminary findings presented at an August meeting of the Retirement Research Consortium in Washington, researcher Irina Telyukova said her study with Makoto Nakajima found that nearly 70 percent of the difference in the way Swedish and U.S. retirees spend down their financial assets can be explained by differences in their potential future medical costs.

Sweden’s healthcare system reduces the uncertainties for retirees in two ways. Sweden has national health care for everyone. Swedish municipalities are responsible for providing long-term care to the elderly in their communities, limiting a cost that can be enormous for U.S. retirees who need these services. …Learn More