December 2, 2014
Curbing Debt: It’s Not What You Know
The biggest financial hurdle facing workers with low incomes is just that: inadequate income to meet their daily needs.
Low-income households are further tripped up by their greater tendency to borrow at high interest rates – rates they are the least able to afford in the first place.
Some academic research blames this on poor financial literacy. But a new study out of Northern Ireland examines two separate aspects of financial literacy and finds the problem is not a lack of knowledge but rather an absence of money management skills.
Among “financially vulnerable” people, the study concluded, “money management skills are important determinants of consumer debt behavior” and “numeracy has almost no role to play.”
The study involved researchers conducting one-hour, face-to-face interviews in low-income neighborhoods in Belfast. They interviewed 499 people whose average gross earnings were the equivalent of $567 per week or less. …Learn More
October 23, 2014
How Emotions Meddle with Money
Our 401(k) retirement system requires most workers to save for the future. But it’s difficult to reach this increasingly important goal, because our emotions – overconfidence, pleasure, fear of loss – get in the way.
“We believe our own nonsense,” is how Daylian Cane, a professor in the Yale School of Management, explains financial behavior in a new public television program, “Thinking Money: The Psychology Behind our Best and Worst Financial Decisions.” The short video above is taken from the program.
Further clouding our judgment are a vast array of consumer products, and the stress produced by how easy it is to purchase them with a credit card swipe and how hard it is to pay off the cards.
“Thinking Money,” a production of Maryland Public Television, covers many topics covered by this blog, including help for people trying to overcome their emotional obstacles.
“Thinking Money” is scheduled to air in its entirety on public television stations around the country in coming weeks. Click on “Learn More” for a list of broadcast dates in major cities. …Learn More
August 14, 2014
South Has Highest Debt Collection Rate
It’s old news that working people in the South earn less than residents of thriving communities in California, the Northeast, the Upper Midwest and elsewhere.
What’s troubling is how many Southerners apparently can’t pay their bills.
West Virginia, North Carolina, Alabama, Kentucky, Texas – they’re among 13 states where more than four in 10 state residents’ credit card or other debts have been sent to collection agencies, according to a July report by the Urban Institute.
The report, based on data from the credit reporting firm TransUnion, provides insight into how many Americans continue to experience financial stress even though the recession is technically over. The Urban Institute’s analysis doesn’t focus on mortgage debt, since delinquent home loans generally go into foreclosure and rarely to collections. Yet many of the Southern states were also hit harder by the housing market collapse than the nation as a whole. …Learn More
May 27, 2014
Attending College if Your Parents Didn’t
Education has historically been the most powerful way for children of the U.S. working class to brighten their futures. But as the cost of college rises, they must climb taller and taller mountains to attend.
The ideal for college – an ideal still pursued by students whose parents can afford it – is to attend full-time and focus on one thing: their studies. But five untraditional students who were profiled in a new documentary say they must juggle their multiple pressing priorities:
- Work, sometimes full-time, to support themselves or help support parents or siblings.
- Maintain a high grade point average after poor high school preparation.
- Inadequate financial aid packages and parents who are unable to help.
- Parents who may not understand the college financial aid process.
- Complexities of transferring credits from a community college to a four-year institution.
Like many untraditional students, Sharon Flores is the first generation in her family to attend college. This top high school student and daughter of a single mother explains her struggle to attend King’s College in Pennsylvania in the documentary, “Redefining Access for the 21st Century Student,” which was produced by the Institute for Higher Education Policy in Washington. …Learn More
May 22, 2014
1 in 3 Late in Paying Student Debt
About one in three Americans trying to pay down their student loans is 90 days or more late on their payments, according to a new report by the Federal Reserve Bank of New York.
This is up sharply from a decade ago, when one in five people in repayment was that far behind.
The Federal Reserve estimates that 31% was the “effective” delinquency rate in 2012; it applies only to people who have actively been in repayment. The bank said this rate is a more accurate measure of the problem than the widely reported rate for 90-day delinquencies – 17 percent – which includes all borrowers, including current students and those who’ve been granted some type of loan payment deferral.
The report, “Measuring Student Debt and Its Performance,” provides more evidence that college debt is a major financial burden for a growing numbers of Americans. Between 2004 and 2012, the number of people borrowing for college has nearly doubled to about 39 million, and the total debt outstanding has nearly tripled to $1 trillion and now exceeds the nation’s credit card debt.
Delinquencies, by any measure, are higher for student debt than for any other type of U.S. consumer debt, including credit cards. The pace of delinquencies is also accelerating, according to the Federal Reserve.
Other trends highlighted in its report include: …Learn More
March 27, 2014
Post Recession: Strugglers vs Thrivers
The Federal Reserve Bank of St. Louis, based on its analysis of data from the Survey of Consumer Finances, estimates that the recession has ended for only about one-quarter of the U.S. population – the thrivers, who have paid down their debts and restored their savings. That would leave three out of four Americans who are still struggling. Squared Away interviewed Ray Boshara, director of the Center for Household Financial Stability at the bank; Bill Emmons, senior economic adviser; and Bryan Noeth, policy analyst, for their insights into why most Americans’ net worth – their assets minus debts – hasn’t recovered.
Q: You distinguish “thrivers” from “strugglers.” Who are these two groups?
Boshara: The thrivers versus strugglers construct is a simple way to make the point that some demographically defined groups are doing better, on average, than others in terms of net worth – what you save, own, and owe, or your entire balance sheet. We found that age, race, ethnicity and education levels are pretty strong predictors of who lost wealth and who’s recovered wealth over the past few years, as well as over a longer period of time.
Q: Describe the typical thrivers.
Emmons: Whites and Asians with a college degree who are over 40 – that’s the typical thriver. Remember, this is a construct, and it’s not 100 percent foolproof. But you would tend to say these groups are more likely to have outcomes consistent with recovering.
Q: How about the typical strugglers?
Emmons: By age – they’re younger – and they’re African-American or Latino. They also do not have a college degree, and they have too much debt. They’re the other three-fourths of the population. They are not holding enough liquid assets, so they’re just one paycheck away from a crisis. They do not have a diversified portfolio and aren’t benefitting from the stock market gains. They’ve got too much in the house, which has declined in value.
Q: What have you learned about young adults and their wealth – or lack of it?
Emmons: It jumps off the page in our analysis: It doesn’t matter if you’re white or college educated. If you’re young, you’re vulnerable, and you’ve made the same portfolio mistakes as people with less education: low levels of liquid assets, too much in the house, an issue that is related to portfolio diversification, and more leverage. …Learn More
March 25, 2014
Do Incentives Create Lax Loan Standards?
The answer to the above question is definitely “yes,” according to new research by professors Sumit Agarwal at the National University of Singapore and Itzhak Ben-David at Ohio State.
They examined 30,000 small business loans made in 2004 and 2005 to compare the loans made by salaried bank officers with those made by officers working under a commission system. The commissioned lenders were paid 80 percent of their former salary, plus commissions based on the number of loans they originated, their dollar amount, and how quickly they were approved.
Not surprisingly, the researchers found that commissioned officers, responding to these incentives, originated 31 percent more loans and the dollar amounts per loan were nearly 15 percent greater – they were also often larger than what their clients had requested. …Learn More