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
The seniors who are most confident of their knowledge about money and investments are also the most likely to fall victim to fraud.
That conclusion, by Chicago researchers at DePaul University and the Rush University Medical Center, is among the first to explain the underlying reason for an alarming trend being detected by law enforcement and financial experts: a rise in fraud committed against an enormous and rapidly aging baby boom generation.
Fraud against the elderly can arise from “that combination of not knowing but thinking you know,” Keith Gamble, an assistant finance professor in DePaul’s Driehaus College of Business, said in an interview in which he explained his new study. “That’s what we call overconfidence,” which he and his co-authors determined was “a risk factor for being victimized by fraud.”
The U.S. incidence of fraud has exploded in recent years. Complaints of financial fraud compiled by the Federal Trade Commission surged more than 60 percent in just three years, to 1.5 million last year.
There is growing concern nationwide that boomers, due to what can be a dangerous combination of cognitive decline and having some money socked away for retirement, are extremely vulnerable to con men peddling financial products that make big promises and deliver nothing – or, worse, rob retirees of money they need to live comfortably or even survive.
Declining cognition is associated with lower financial literacy – that’s nothing new. The concern is that seniors do not recognize the problem, Gamble said. “They are actually more confident in their financial decision-making capabilities. The problem is they don’t have the decision-making ability they once had.”
The Chicago researchers focused on seniors who have not acquired actual dementia or Alzheimer’s disease. Rather, they examined whether fraud could be linked to the cognitive decline that is a natural part of aging. …Learn More
In a September paper distributed by the National Bureau of Economic Research, Professor Brigitte Madrian and her co-authors reviewedthe current state of U.S. financial education. In an interview, Madrian, a professor in Harvard University’s John F. Kennedy School of Government, provided some fresh insights into education, regulation, and the role of the financial industry.
Q: Besides low financial literacy, why do people make bad financial decisions?
A: Procrastination. Inattention – one reason people accrue credit card late fees is that they forget to pay their bills on time. Advertising – people are swayed by the marketing of financial services and products. Not all products pushed by financial advisers or financial-services companies are appropriate for everyone, and sometimes people are swayed into purchasing products that may be right for someone else but aren’t right for them.
Q: Does financial education even work?
A: I believe the jury is out. We do not have a lot of compelling evidence on the impact of financial literacy programs. There have been lots of studies on programs, but many of them are of dubious scientific validity. Of the ones that are more credible in terms of methodology, some find very little impact on financial education and a handful find financially positive effects. …
Michael and Erin Gallagher are just 26 years old but have made a strong start financially, socking away $50,000 by maxing out their 401(k)s while honoring a $20,000 budget for their October 5 wedding in downstate Illinois.
Jennifer and John Lucido, both 32 years old, now have $250,000 in the bank and have built a 2,500-square-foot home near Detroit.
By comparison, the typical U.S. household had saved $42,000 for retirement in 2010, according to the Center for Retirement Research, which funds this blog.
Both couples are members of that rare species of 20-something super savers, spurning intense peer pressure to spend money on consumer items, go out for dinner a lot, and run up their credit cards. Neither couple got where they did the easy way either. They worked hard, but they were also quick to catch on to important lessons about being frugal and saving – from their parents or from each other.
“I have clients in their 30s and 40s who don’t even have $200,000 in their 401k,” said Naomi Myhaver, a financial planner at Baystate Financial Services in Worcester, Massachusetts.
An August article in The Journal of Consumer Affairs suggests one reason people like them are so hard to find. Young adults are extremely vulnerable to peer pressure to run up credit card debt so they can support a high lifestyle and social life.
In the study, 225 college students were asked questions such as whether they have “very strong” connections to their friends or “feel the need to spend as much as [friends] do on activities we do together.” College students have an average of 4.6 credit cards and $4,100 in debt… Learn More
Dennis Ackley says he doesn’t get a lot of holiday cards from the mutual fund industry.
The Kansas City, Missouri, consultant has become a well-known critic of the 401(k) materials that funds provide to employers, which usually leave the complex job of retirement planning to the workers to figure out. When speaking to a room full of 401(k) plan sponsors, he has a unique way of getting his point across. Ackley hands out sheets of paper similar to what’s shown here and asks them to wad them up and throw them at the target.
The problem – for the plan sponsors in the audience – is that Ackley doesn’t give them a target.
“Most of them are just kind of befuddled by the whole thing.” Befuddlement, he tells is audience, “is what young employees experience sitting in a 401(k) meeting.” …Learn More
A good friend in Houston recently emailed me to ask whether she should buy long-term care insurance. Let me be very clear about my answer: I have no idea.
This writer is like baby boomers everywhere trying to get a grip on this long-term care stuff. Where to start?
First, let’s look at the prices for long-term care. Squared Away used data from Genworth, one of the nation’s largest insurers in this market, to generate a U.S. map with the median cost in each state of a semi-private room in a nursing care facility.
Genworth’s goal is obviously to sell insurance. But I ran its data by a few people, and it held up well, with a few observations and caveats discussed later…Learn More
Nearly half of people who have cell phones pay more than $100 per month for the service and 13 percent pay $200 or more, according to a survey by an online coupon company.
That doesn’t include the cost of the physical phone, the app and music downloads, the extra data plans. A certified public accounting organization in Oregon, Oregon Saves, estimates that the total cost for a two-year contract can easily reach $3,000.
And then there are the rogue teenagers who go over the monthly limits on minutes set by their parents’ cell plans – eventually, the parents relent and buy an unlimited data/text plan, which drives up their monthly charges permanently.
Wow, this habit is getting expensive.
The cell phone isn’t the only electronic habit that’s costing us. We also pay hundreds for cable TV, the Internet on our home computers, the land line. The automatic withdrawals for these services suck hundreds from our bank accounts each month – and we may not notice how much we’re spending since the transactions are electronic…Learn More