Walter Mischel, who used marshmallows to test children’s ability to delay gratification, died recently, but his lesson never grows old.
For those who aren’t familiar with his famous test, a young girl or boy sits at a table with a single marshmallow on a plate. The tester tells the child that he or she can eat the marshmallow right away, but waiting to eat it until the tester comes back into the room will bring a big payoff: a second sweet, puffy morsel.
Watching the children in this video squirm as they wrestle with their decisions brings to mind the adult equivalent. A desire for immediate self-gratification can come at the detriment of any number of personal financial decisions.
Like the marshmallow test, consuming now means having less money in the bank later. The test also applies to deciding when to retire. Retiring becomes extremely tempting for baby boomers who want to escape from work after decades in the labor force. But those who wait patiently for a few more years will have a sweeter retirement: a much larger Social Security check and more 401(k) savings distributed over fewer total years in retirement.
Children, when faced with the marshmallow test, struggle mightily to exercise self-control. They pick up the marshmallow to examine it, play with it, nibble it, and move it out of reach – but impulse gets the better of them, and they pop it into their mouths.
The lesson here is the same for children and adults: resist temptation and be rewarded. …Learn More
When the economy is expanding and more people are working and earning more, they can afford to have more babies.
But that time-tested connection between the economy and fertility seems to be broken. During the recovery that followed the 2008-2009 recession and continues today, the U.S. fertility rate has dropped quite a bit.
Lower fertility is of interest to retirement experts because it has serious implications for our aging population. AARP’s Public Policy Institute predicts a decline in the number of family members and friends available in the future to care for the elderly. Fewer babies also mean fewer workers will be paying into Social Security, in the absence of an increase in immigration.
Of course, fertility rates in developed countries like the United States, Germany, and Japan are far below the post-World War II baby boom. But the very recent decline in this country is striking. The total fertility rate, the best measure of current fertility, is 1.76 births per woman. This is well below the rate of 2 births per woman a decade ago.
A study by researchers at the Center for Retirement Research at Boston College identified four structural changes that are pulling the birth rate down. …Learn More
Kathy Barker already was having concerns that her elderly father’s dementia made it increasingly difficult for him to manage his life. When his doctor said he could no longer drive, Barker had to do something.
A contractor was hired to build a 448-square-foot cottage in the backyard of her Tampa home. Her father enjoyed it for just 10 days before going into the hospital, where he died. But the house was still a great solution – this time for her mother, JoAnn George. (Her parents divorced long ago.)
Last November, George was moved into the backyard “granny pod,” which has a front porch, living room, bedroom, bathroom, and small refrigerator – but no other appliances. Granny pods, which come in a variety of architectural styles, from Victorian to modern, aren’t cheap. George’s cottage cost $90,000 to build, putting it in the higher end of the price range for these dwellings, according to Home Care Suites, which built it. [Here’s the virtual tour of the house.]
The 88-year-old George had been living in nearby Plant City, Florida, close to another daughter. But as she slowly declined, Barker decided that moving her into the backyard made sense. A flood in her mother’s home, caused by a broken pipe, provided a convenient opportunity to take matters into her own hands.
Now Barker, who runs a web development business with her husband out of their home, can keep a close eye on her mother. Although George is developing cognitive issues, she still takes care of herself, is healthy, and takes no medications.
The beauty of separate living quarters, Barker said, is that her mother can “keep [her] own independence.” … Learn More
When a marriage ends in divorce, there are no fewer than seven ways that it could damage a person’s finances.
Divorce can rack up costly legal fees; force a house or stock sale in a down market; increase living expenses; increase tax rates; hamper the ability of the primary caregiver – mothers – to earn money; require fathers to pay alimony; and reduce each partner’s access to credit.
A new study looking at their impact on workers’ future finances concludes that divorce – the fate of four in 10 marriages – “substantially increases the likelihood” that their standard of living will decline after they retire. …Learn More
Moms don’t need a research study to tell them that their earnings will never be high as dads’.
Nevertheless, a new study confirms this – and the pay gap may be larger than some suspect. In the two years surrounding the baby’s birth, mothers’ earnings fall by 12 percent, on average, as their careers stall or they take a hiatus from work to care for the child. Meanwhile, fathers’ careers clip along, with bonuses, pay raises, more hours, or better jobs bumping up their pay by 34 percent.
Mothers don’t get back to their pre-baby income levels until the child is 9 or 10 years old. The mom-dad wage gap will never be smaller than it was before the baby, because “the earnings of the male spouse do not undergo the initial shock” of childbirth, according to the U.S. Census Bureau researchers. They tracked wage changes starting in 1978, when baby boomer women were streaming into the labor force.
Their comparison of the husband-wife pay gap helps to overcome a big disadvantage of analyzing the popularized version of the gap: women earn 82 cents for every dollar a man earns. This headline statistic applies to all men and all women.
It’s neater to compare spouses, because both of them experience the baby bump at the same time, allowing estimates of the changes in each one’s earnings during the same time period and life circumstances. Just as important, husbands and wives usually bring to a marriage similar levels of education, the major determinant of earnings throughout workers’ lives.
The big issue in this study, however, is that data limitations prevented the researchers from controlling for the hours each spouse works after the baby’s birth. There are several potential explanations for mothers’ smaller paychecks but reduced hours are a major reason.
Maternity leave can be the start of several years of part-time employment at lower pay or even a hiatus from work for childrearing. If new mothers do return to the labor force fairly quickly, prioritizing the child can mean a job with less responsibility and lower pay than they earned in the past.
The increasing pay gap illuminates the financial sacrifices that moms make. Here are other findings in the study: …Learn More
The grocery shopping for five is over, the family cell phone plan has been canceled, and the college tuition has been paid one last time.
So what’s next?
Newly minted empty nesters, having poured a couple hundred thousand dollars into raising each child, respond to their financial liberation in one of two ways. Some start saving more for their golden years. The others keep spending at that elevated level – but this time on themselves.
This personal decision, made at the critical juncture in the pre-retirement years, will have consequences for retirement – save more and things could turn out pretty well, or keep spending and jeopardize financial security in old age.
In the aggregate, at least some older households are taking the second approach. An analysis by the Center for Retirement Research at Boston College, finds that having children translates to “a moderate increase” in the risk that their standard of living will fall after they retire.
The researchers looked at the financial implications of kids from two angles. First, they used household data to estimate the sacrifices parents make – in the form of lower income – while they are raising children. Then they looked ahead to their retirement finances.
Compared with childless couples, parents in their 30s and 40s have about 3 percent less income for each additional child – some of this loss occurs when mothers work part-time temporarily or take time out for childbearing and childrearing. The income gap between parents and childless couples closes when parents reach their 50s and the kids start leaving the roost.
Less income over a lifetime translates to less wealth: parenthood reduces wealth by about 4 percent per child for workers ages 30-59.
The effects of children persist even after the transition from work to retirement. …Learn More
Kate McKinnon has made a name as a comedienne with her wild and weird humor on “Saturday Night Live.” But she plays straight man to the kids she interviews about money.
This video, produced by the best-selling personal finance author, Beth Kobliner, is an effort to have some fun while improving financial literacy – an effort that seems aimed more at adults than children.
Justine, Ricky, and Jillian are the sugar that makes Kobliner’s sober advice about saving, jobs, debt, and credit cards more palatable – and this strategy just might be effective.