December 6, 2012
Readers’ Picks for 2012
Squared Away readers’ favorite articles during the year reflect America’s biggest financial challenges: paying for college and retirement.
The following are the Top 10, according to an online analysis of blog articles with the most unique visits by readers. A link to each article is embedded in the last word of each headline:
It Pays More Than Ever to Delay
The Long-Term Care Insurance Gamble
Boomer Moms, Here’s a Radical Idea
For Many Elderly, Little Left at Life’s End
Why Baby Boomers Can’t Retire …Learn More
November 29, 2012
13% Haven’t Paid Off Christmas 2011
Consumer Reports says 13 percent of Americans are still paying off credit cards that they ran up to buy 2011’s holiday gifts.
That may be one reason more Americans plan to budget this holiday season – 52 percent – compared with last year’s 41 percent, according to Consumer Reports’ national survey. Among those who bought their 2011 gifts with credit cards, 58 percent paid them off by the end of January and another 13 percent in February – hats off to them. But the rest waited. Some are still waiting.
I can relate.
In the interest of encouraging Squared Away readers to reveal their financial failings in the comments area below, here’s one of mine: a credit card balance averaging $2,500 for more than 20 years. It’s embarrassing, and yes, this personal finance blogger knows why it’s important to pay off a credit card charging nearly 15 percent interest – what a waste of a few thousand dollars I could’ve put in my 401(k), for instance…Learn More
October 30, 2012
Blame Aid Policies – Not Tuitions
Admissions policies and financial aid packages at individual colleges – not just tuitions and fees – are significant determinants of student loan levels, according to new research.
No wonder there’s a cottage industry of financial planners who specialize in counseling families on college admissions: this granular – and often invisible – information about financial aid is critical to whether your child carries a burdensome debt load with his diploma on graduation day.
The media and policymakers – and (Squared Away adds) parents – “have assumed that tuition and university sticker prices are the primary if not the sole factor driving the rise in student indebtedness,” James Monks, an economist in the University of Richmond’s Robins School of Business, concluded in an October paper. “This assumption ignores the substantial impact that college and university admissions and financial aid policies” have in determining debt levels.
Certainly parents should pay attention to tuition and fees. But Monk found that public college admission policies that are blind to students’ financial circumstances produce students with “a higher average debt upon graduation,” which tends to fall on their lower-income students. When a college says that it is “need-blind,” it is saying that it looks at each student’s financial situation only after deciding whether to admit him or her based on test scores, grades and letters – this policy is typically aimed at increasing enrollment of low-income students. After agreeing to accept a student, the institutions try to help those who need it most through their financial aid packages. But this aid often falls short, requiring heavy borrowing by students.
In contrast, the target of some private institutions is to maximize the number of students graduating with no debt or limited debt. At institutions with such policies, Monks found that students have significantly lower debt levels than institutions that lack this policy.
Danielle Schultz, a straight-talking Evanston, Illinois, financial planner said most public colleges claim to be need-blind in selecting their incoming freshman class. But at a time when state budgets are tight, far fewer now have the financial resources to back up such a policy, she said, which drives up borrowing by their students. As for private colleges, she said they’re also feeling financial pressure and believes that fewer institutions than in the past can afford to maintain generous no-debt policies.
Rising debt levels is the result. U.S. college graduates had $26,600 in student debt last year, up 45 percent from 2004, according to a new report by the Institute for College Access and Success.
Schultz, who just successfully shipped her daughter off to college – Bryn Mawr outside Philadelphia – describes college application as a treacherous process rife with pitfalls.
“Schools are in the business of forking over the least money possible to get the most motivated kids and the most diversity,” she said. The onus is increasingly on parents “to think hard about what kind of dollars they are willing to fork over.” These days, it’s about the major: can the student get a job after college? Her rule: don’t borrow more than the student can expect to earn the first year after graduation…Learn More
October 18, 2012
College Educated Take On More Debt
Americans with college degrees are more likely to overuse their credit cards, home equity loans and other debts than are people who didn’t attend college, according to research in the latest International Journal of Consumer Studies.
“I was really expecting the reverse,” Sherman Hanna, a professor of consumer sciences at Ohio State University in Columbus, said about the results of his research, conducted in conjunction with Ewha Womans University in Seoul and the University of Georgia in Athens.
The study also reveals the increasing fragility of Americans’ finances, particularly in the run-up to the 2008 financial crisis when overall debt levels surged amid what Hanna called a “democratization of credit” that made it easier – critics said too easy – to borrow.
The percent of all U.S. households with monthly debt payments exceeding 40 percent of their pretax income rose from 18 percent in 1992 to 27 percent in 2007. (Consumers have slashed their debt during the recent recession.)
Based on education levels, Americans with a bachelor’s or graduate degree had more than a 32 percent likelihood of being heavily in debt. That compared with 24.5 percent for people who graduated from high school and did not attend college, according to the study, which tracked U.S. households from 1992 through 2007. To make their comparison, the researchers controlled for the effect of incomes.
The researchers designated households in their sample as being heavily in debt if their monthly loan payments and other debt obligations exceeded 40 percent of their pretax income. That is a high share of income to devote every month to paying off loans, rather than buying groceries, saving for retirement, or utilities…Learn More
September 4, 2012
Flatline: U.S. Retirement Savings
Baby boomers’ balances in 401k and IRA accounts have barely budged for most of the past decade.
In 2004, the typical U.S. household between ages 55 and 64 held just over $45,000 in their tax-exempt retirement plans. Plan balances for people who fell in that age group in 2007 rose but settled back down after the biggest financial crisis in U.S. history. In 2010, they were $42,000, a few bucks lower than 2004 balances.
These are among the reams of sobering data contained in the Federal Reserve’s 2010 Survey of Consumer Finances released in June. The $42,000 average balance is for all Americans – it includes the more than half of U.S. workers who do not participate in an employer-sponsored savings program.
There’s more bad news buried in the SCF: the value of other financial assets such as bank savings accounts dropped in half, to $18,000. And hardship withdrawals from 401(k)s have increased, to more than 2 percent of plan participants, from 1.5 percent in 2004.
So, where did all that wealth created by the longest economic boom in U.S. history go? The 2008 financial collapse didn’t help. But we can also blame the baby boom culture. Click here to read a year-ago article that examines the cultural reasons for the troubling condition of our retirement system.
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August 30, 2012
What You May Have Missed
A few articles Squared Away readers might’ve missed while they were on vacation are listed below.
A link to each article appears at the end of these summer headlines:
Couple Reach Across Financial Divide
Little Thought Put Into Retirement Date
How Can Debt Enhance Self-Esteem?
Progress Stalls for Young Adults
Free Financial Advice Goes Online
10 Student Loan Prevention Strategies
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July 31, 2012
Student Loan Prevention: Part 2
Last week, Squared Away published the first five of 10 strategies to help parents and their college-bound kids limit their borrowing through student loans. As promised, readers can find the remaining five ideas below.
On a complexity scale, finding a college is comparable to buying a house, and some of these debt-cutting strategies are extremely difficult to put into practice. In addition to the financial challenges involved, the emotional aspects of parent-child dynamics and the college application process are daunting.
But the soaring cost of an undergraduate education has made student debt prevention a top priority for most families. Here’s more help from college financial advisers.
Deborah Fox of Fox College Funding LLC in San Diego said the days of majoring in English, philosophy or history are over – or should be. Given the financial pressures of college, she said, students can’t afford to “just study what’s interesting to you.” When weighing future earnings for graduates with such majors, the numbers just don’t add up, especially if the English degree is from a high-cost institution like Columbia University (high cost among private colleges) or the University of Illinois at Urbana-Champaign (expensive for in-state students).
Fox asks her clients to identify skills the college-bound teenager is good at. When entering college, they should already have a handful of potential occupations in mind. Then they can focus on relevant internships, jobs, courses and life skills that will help them get a job when they graduate – and begin paying back their loans. Freshmen should immediately begin testing their theories about the work they’ll want to do – “possibilities they could get excited about,” she said. She tells clients’ kids to “start exploring them immediately, shadow [people in their field], take someone out for coffee. Find out what is the day-to-day work like.” …Learn More