July 30, 2015
College Funds Depend on Family Income
How much teenagers must borrow for college often depends on whether their parents can help foot the bill – and how much they can afford.
Fresh data from a survey by Sallie Mae, the private college lender, shed light on how low-, middle- and high-income families find the money to pay for a college education. The data break down how much of students’ total costs – tuition, plus books, room and board, fees, living expenses, and transportation – come from earnings, savings, borrowing, grants or other sources.
Here’s what stands out in the data, which are displayed in this chart:
- In low-income families, the students themselves take responsibility for saving, earning or borrowing money to cover 32 percent of their costs, and middle-income students pay 29 percent. Students from high-income families cover just 19 percent of their costs; they tend to pay more for their education, so their total dollar costs are higher, which somewhat narrows the dollar difference between what students in each income group pay. …
January 13, 2015
Americans Cope with Income Swings
A full-time job that delivers a steady paycheck, week in and week out, is a luxury for many working people.
Low- and middle-income adults are instead often whipsawed by wild swings in their incomes, finds a U.S. Financial Diaries project, based on detailed biweekly or monthly financial interviews with 235 urban and rural U.S. households nationwide. During the course of the year these interviews were conducted, the average household experienced four spikes or dips, defined as a change of at least 25 percent in their incomes.
The Bloomberg video above explains that even when workers’ annual incomes are sufficient to cover annual expenses, these month-to-month fluctuations complicate how – or whether – they can save for their future.
The income swings have many causes primarily stemming from the labor market, including unpredictable work schedules, unsteady part-time or self-employment, and a patchwork of multiple jobs, as well as a reliance on intermittent payments such as tax refunds. More than half of the adults interviewed – retail and construction workers, waitresses, check cashers, hotel workers, taxi drivers – held down more than two jobs. …Learn More
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
November 20, 2014
Income and Disparate Death Rates
The differences in Americans’ longevity, depending on one’s income level, are striking.
The annual death rates for 50- to 74-year-old men and women with the lowest earnings are more than double what they are for high earners.
This gap in life spans, which is well-documented in the research literature, has been growing with each new generation. A recent study digs deeper to uncover specific ailments, such as heart disease, that may be driving the growing disparity.
Brookings Institution researchers Barry Bosworth, Gary Burtless, and Kan Zhang used data from a nationally representative sample of almost 32,000 older Americans that included the causes of individual deaths occurring between 1992 and 2010. The survey contains detailed information about the cause and timing of the deaths, as well as interviews with family of the survey participants after they die.
The researchers compared the mortality rates linked to specific diseases for high- and low income people, defined as those whose earnings in their prime working years fell either above or below the median, or middle, income. They found that the risk of dying from the nation’s leading causes of death – cancer and heart conditions – has declined significantly for high-income Americans, both men and women. No such improvements were evident, however, for low-income men and women. …Learn More
October 2, 2014
Primer: Home Equity → Retiree Income
Americans who are 62 or older had an estimated $3.6 trillion in total equity locked up in their homes in the first quarter of 2014, according to the National Reverse Mortgage Lenders Association. A new primer suggests they should start thinking seriously about using it to generate some extra retirement income.
The primer, published by the Center for Retirement Research at Boston College, which sponsors this blog, discusses two ways retirees can use home equity to generate income: by downsizing into a less expensive house or condominium or by taking out a reverse mortgage.
Click here to read the booklet online and learn how these strategies work and how much money each can provide. Their pros and cons are detailed in the graphic below, excerpted from the booklet:
September 16, 2014
Canadian Pension Reform: the Long View
Policymakers often worry that increasing government pension benefits won’t necessarily help retirees, if the reforms cause workers to change their behavior in ways that counteract them. For example, some workers might save less if they know pension benefits are rising, offsetting the income boost they’ll get from a larger pension.
However, researchers examining Canada’s pension reform over five decades confirm that they have materially improved the financial well-being of retirees there.
To reach this conclusion, Kevin Milligan of the Vancouver School of Economics and David Wise of Harvard University tracked the financial status of older Canadians from 1960 through 2010. They analyzed some 100,000 families between 55 and 80 years old using Canada’s Survey of Consumer Finances, the Survey of Labor and Income Dynamics, and the Family Expenditure Survey.
They conducted simulations to estimate what benefits would have been if no policy changes had been made since the 1960s. This simulation showed that the poverty rate, based on the incomes of Canadians from ages 70 through 79, would have been 34 percent. But today, in the aftermath of reforms, only 4 percent of older Canadian families are poor. [The researchers did a second simulation based on an alternative poverty measure: how much older Canadians spend on shelter, food, clothing and other goods. This also showed a decline in the poverty rate, albeit smaller.] …Learn More
May 14, 2014
Low Income: Why Only 12% Save to Retire
A new study estimating that just 12 percent of low-income older Americans save in a 401(k) or similar employer retirement plan also suggests that many more would save – if only they could.
The researchers – April Yanyuan Wu, Matt Rutledge, and Jacob Penglase of the Center for Retirement Research – focused on individuals between ages 50 and 58 with household incomes below three times the poverty line. That was less than $36,357 in 2010 for a one-person household, for example, and less than $46,800 for two people. The period studied spans 1992 through 2010.
Retirement saving primarily takes place in workplace plans. But to participate in a plan, workers must clear four hurdles. First, they need a job. Next, their employer must offer a retirement savings plan. If there is a plan, they must be eligible to participate. And if eligible, they must sign up and contribute.
A failure to sign up can’t be blamed for the dismal savings rate of this low-income group. Instead, the problem is that many never get the chance. …Learn More