Posts Tagged "manage money"

The Marshmallow Test for Retirement

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

clutter

Americans’ Compulsion for Clutter

Anthropologists took a deep dive into Middle America’s clutter a few years ago, and here’s what they found:

A wall of shelves holding hundreds and hundreds of Beanie Babies and dolls. Giant packs of multiple paper towels, cleaning fluids, Gatorade, and Dixie cups piled high in the garage or laundry room. Frozen prepared foods jam-packed into twin refrigerators in the kitchen and garage – enough to feed a family for weeks.

I write frequently about the financial challenges facing the middle class today and their perception that the American Dream is slowly and inexorably eroding. This feeling is very real.

But surely hyper-consumerism has something to do with our financial stress. U.S. households have more possessions than in any other country, UCLA anthropologists said in this video:

Money spent unnecessarily to stock our own personal Big Box store in the garage leaves much less for long-term goals like savings, retirement, and college tuition – the same expenses middle class families struggle to afford.  “We buy stuff we don’t need with money we don’t have,” summed up one commenter on the video’s YouTube page.

The United States has long been a prosperous and material culture. But anthropologist Anthony Graesch argues that the magnitude of consumption has grown by leaps and bounds. This trend has probably been encouraged by the proliferation of inexpensive imports from countries with lower wages. Over a lifetime, these small expenses add up to boatloads of money.

“The sheer diversity and availability and fairly inexpensive array of objects that are out there – this has significantly changed over the years,” Graesch said. Toys are a prime example. “We’re perhaps spending more on kids’ material culture than ever before.”

Minimalism goes in and out of vogue, but there are few minimalists among us – this takes work, self-control, and a willingness to part ways with sentimentality. For the rest of us, there’s a personal finance lesson in this video. …
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College Debt Can Limit 401(k) Saving

college loans chartThe share of students borrowing money to pay for college increases year after year, and they’re borrowing more every year.  Total student debt, adjusted for inflation, has tripled in just over a decade.

The loan payments, which can be a few hundred dollars a month, take a big bite out of young adults’ still-low levels of disposable income. The debt makes them more prone to bankruptcy and lower homeownership rates.

A key question is whether this pressing financial obligation might affect their preparation for a retirement that is several decades away.  Here’s what researchers Matt Rutledge, Geoff Sanzenbacher, and Francis Vitagliano of the Center for Retirement Research learned about student debt:

  • By age 30, the college graduates who are loan-free have saved two times more in their retirement plans than the graduates who are paying off debt. (Perhaps surprisingly, the presence of student loans do not seem to affect the amount saved by students who didn’t graduate, though they do have substantially less in their 401(k)s than the graduates.)
  • The amount owed by college graduates with loans does not matter. The mere existence of the debt is enough to constrain saving. …

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2 in 5 Millennials Have Used Payday Loans

Millennials at a food truckMillennials are big users of payday loans, which have steep interest rates that can really mess up their finances.

Remarkably, two out of five people in their mid-20s to mid-30s have used a payday loan, which is more than double the frequency for people in their late 30s, says Melody Harvey at the Pardee RAND public policy school. Generation-Xers and baby boomers use them even less, other surveys have shown.

Harvey’s new research has produced some evidence that something can be done to protect vulnerable young adults in the future: require them to take money management classes while they’re still in high school.

The use of payday loans is part of a broader trend among Millennials, she said. They also turn to desperation financing such as pawn shops to raise quick cash or rent-to-own schemes that, in the end, require them to pay much more for consumer products like furniture and computers.

Many young adults probably gravitate to high-cost forms of financing, because they’re strapped for cash after paying their rent and student loans every month. They also start their careers at relatively low wages and haven’t established the strong credit histories required to qualify for traditional, lower-cost debt.

But while poor people are often forced to use payday loans to solve an impossible financial problem, young adults could be using them partly to fund profligate spending. …Learn More

paddleboarder

1 in 4 Can’t Afford a Summer Vacation

What a drag. One in four Americans said they can’t afford to take a vacation this summer.

The 3.8 percent unemployment rate is at its lowest since 2000, when the high-technology industry was going gangbusters. Despite the economy’s current strength, the cost of a vacation puts it out of reach for millions of people.

The average family of four spends about $4,000 on vacation, Bankrate said. Air fares don’t seem to be the issue – they are lower now than they were five years ago. But families living on a limited budget are more likely to drive, and the price of gasoline has shot up 25 percent over the past year, to around $2.90 per gallon.

Many people are shortchanging themselves on vacations, because they are “living paycheck to paycheck,” analyst Greg McBride said in a recent Bankrate blog.

Indeed, workers paid on an hourly basis can’t seem to get ahead. Their wage increases, adjusted for inflation, have been flat over the past year. Further, one in four U.S. households couldn’t come up with $2,000 even in an emergency, according to one widely cited study a few years ago. A summer vacation is probably out of the question for them.

Everyone needs a little time off to decompress and relax. Yes, it would be great to go on a deluxe fishing trip to Canada or cycle around Tuscany for two weeks, but there are more affordable ways to enjoy a few days off. A “staycation” is better than nothing. And the cost of a trip can be kept under $500 – one in four people do it, Bankrate said.

But cost isn’t the only reason people skip their vacation – family and work obligations also get in the way. A majority of workers, according to Bankrate, aren’t even using all of their paid vacation days.Learn More

SNL’s Kate McKinnon and Kids on Money

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.

Watch for yourself.

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Future Retirees Financially Fragile

Retirement contributionsThe scary thing about fully retiring is the obvious thing: the ability to earn stops cold.

Most retirees live on what they get from Social Security and what they can spend from their savings, if they have any.  So how many older Americans with fixed incomes can accurately be described as being in difficult straits financially?

Only about 10 percent of retired people today are being forced to cut back on food and medications to pay their other bills, concludes a summary of recent studies on retirement income by the Center for Retirement Research (CRR), which supports this blog.

Tomorrow’s retirees have a more troubling outlook, in part because they will be dramatically more reliant on 401(k)s.

The typical middle-income worker in Generation X, who ranges in age from 37 to 53, can expect his savings to supply 42 percent of his total income when he retires.  Savings are necessary for just 27 percent of the total income of current retirees born during the Great Depression and World War II, according to one of the studies summarized by CRR and conducted by the Urban Institute and U.S. Social Security Administration. …Learn More

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