November 13, 2014
Trusting Souls Want Financial Advice
Here’s a conundrum: Americans struggle to save for retirement or reduce their credit card spending. But only about one out of three seeks help with financial issues.
So what lies at the heart of our decisions about whether and when to seek help? Trust.
In the video below, Angela Hung, director of the RAND Center for Financial and Economic Decision Making, describes research showing that people who trust financial institutions – the markets, financial services companies, brokers – are also more likely to ask for advice from a financial adviser or similar professional.
Further, Hung’s research found that people who trust the industry are also “more likely to be satisfied with their financial service provider.” Watch the video for Hung’s explanation of an interesting experiment that explores the circumstances under which people follow the advice once it’s given to them.
November 4, 2014
5 Signs of Financial Impairment
In a videotaped experiment testing her financial cognition, an elderly woman must prepare three utility bills for mailing. She’s seated at a table holding the bills, along with three filled-out checks, and three envelopes – each with one utility’s name on it. After considerable effort and confusion – checks paired with the wrong bills; bills placed into the wrong envelopes and taken back out – she finally finishes her task.
New difficulty carrying out simple financial tasks or understanding financial concepts that were once familiar can be warning signs of cognitive impairment due to aging, early stage Alzheimer’s or other causes, said Daniel Marson, a neurology professor and director of the Alzheimer’s Disease Center at the University of Alabama, Birmingham.
Financial skills are “the canary in the coal mine from a functional standpoint,” he said. “When you are seeing new problems in the checkbook or arithmetic errors, those are signs of an emerging disability.”
Driving, for example, may not be affected as much early on, because it relies more heavily on motor memory. “You don’t have to think about making a right turn or signaling,” he said.
The chances of having Alzheimer’s disease are slim for most older Americans; only one in nine do. Forgetting to pay a bill is more often just a sign of a bad day, and the inability to balance a checkbook or understand investments is not a warning sign if the person was never able to do so. To gauge whether the cognitive ability of a loved one or client may be in decline, the benchmark should be what he or she was able to do financially in the past – and whether that’s changed over time.
At a recent symposium, “Financial Planning in the Shadows of Dementia,” Marson provided five financial warning signs, developed from his clinical work and research as a neuropsychologist. The warning signs are: …Learn More
October 30, 2014
Strange Influences on Financial Decisions
It would be nice to think that careful financial planning is behind the critical decision of when to start collecting Social Security benefits.
But psychological traits – perhaps impatience or one’s fear of losing money – can also affect whether an individual claims his benefits right at age 62 or waits a few years to increase his monthly income from Social Security. A new study reveals another powerful influence that can jeopardize financial security: how a person’s dollar benefits might appear on the printed Social Security statement.
Business professors Suzanne Shu at UCLA and John Payne and Namika Sagara at Duke University tested this on people over age 40, controlling for psychological influences on the research subjects, such as their impatience, loss aversion, and expectations of how long they’ll live.
In the first experiment, some people were shown tables presenting their monthly Social Security benefits for each claiming age from 62 to 70 – this layout highlights the significant benefit increases that come with each year of delay.
A second set of subjects saw more complex tables displaying their total potential benefits accumulated over their entire time in retirement, which depends on both the age they first claimed and on how long they’ll live. This presentation emphasized a different aspect of the decision: the later someone claims and the longer he lives, the more money he’ll receive over many years. Die young, however, and the accumulated benefits are higher for those claiming at 62.
The experiment’s outcome was significant. The cumulative tables “make people want to claim earlier” – six months earlier than people shown the tables with monthly benefits – Shu said during a recent presentation. …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
October 21, 2014
Fraud Comes with Aging, Mental Decline
Sometimes research seems merely to confirm the obvious. One example is a new study showing that the cognitive decline that naturally comes with aging makes a senior more vulnerable to fraud.
This isn’t especially surprising, but it is important. Amid a shortage of solid research about fraud among the elderly, this study provides important insight into how and under what circumstances they are increasingly being taken to the cleaners by scammers.
In their study, Keith Gamble at DePaul University and researchers at the Rush University Medical Center used a survey of older Chicagoans known as the Rush Memory and Aging Project, which contains an unusual amount of information about aging, cognition, and financial fraud.
In addition to measuring changes over time in the cognitive functioning of its participating seniors – mostly women – the annual survey asks if they’ve ever been a victim of fraud. It also includes six questions designed to get at their susceptibility to fraud – Do they have difficulty ending a phone call? – and two questions asking about their willingness to take undue financial risks. In this case, the undue risk is whether they’d accept a bet with 50/50 odds that they could either double their annual income or lose 10 percent of that income.
Here are their findings: …Learn More
October 14, 2014
A Thriving Underground Money Culture
Recent immigrants – whether from Mexico, Africa or China – often form groups that regularly contribute to a pool of money. Group members then take turns pulling out $500 or $1,000 in accumulated cash.
These savings groups are one aspect of a pervasive underground money culture bustling beneath the surface in U.S. communities of immigrants and other low-income workers.
Savings groups are one of four types of “informal” financial arrangements identified in a new report, “An Invisible Finance Sector: How Households Use Financial Tools of Their Own Making.” These arrangements create a strong social commitment to saving typically absent in the formal U.S. banking system.
The four arrangements discussed in the report are:
- Savings groups, also known as lending circles, which are primarily found in immigrant communities.
- Interpersonal loans.
- Storing more than $100 in cash at home.
- Money guards who safeguard someone else’s savings. …
October 9, 2014
Financial Guides Come in Many Languages
The federal government has added two Spanish-language guides to its multilingual library printed in languages ranging from French to Tagalog, the language of the Philippines.
The Spanish guides (previously available in English) – “Money Smart para Adultos Mayores” (“Money Smart for Older Adults”) and “Cómo Administrar el Dinero de Otras Personas” (“Managing Someone Else’s Money”) – teach seniors and their caregivers how to spot scams and frauds and help caregivers to understand their financial duties.
They are all free of charge and published by the Office for Older Americans in the Consumer Financial Protection Bureau (CFPB).
Other topics also appear in the CFPB’s online table of contents, which permits consumers and financial planners to search by language or by subjects including money management, credit, and mortgages.
Booklets in Chinese and other languages explain the safest ways to send money back home. Mortgage booklets are available in Chinese, French, Haitian Creole, Korean, Tagalog, and Spanish. They explain borrower’s rights, including the additional requirements for lenders’ disclosures to borrowers put in place in the wake of the subprime mortgage meltdown, which also affected immigrant neighborhoods. The Spanish booklets include one on reverse mortgages for retirees.
The library’s table of contents is available here – it requires clicking around to find out what’s available in each language.Learn More