December 5, 2013
Laid-off Boomers: Retirement as Default
The natural reaction to losing a job is to get a new one. But when older people become unemployed, some view it as a dilemma: look for work or just retire?
The presence of a financial safety net significantly increases the likelihood that an older, unemployed person will retire. And that decision often comes quickly after they lose their job, concluded a new study by Matt Rutledge, an economist for the Center for Retirement Research, which supports this blog.
“The brevity of [their] jobless spells suggests that older individuals have little tolerance for a job search” and will “make a quick exit” if they have financial resources backing them up, Rutledge wrote in a recent summary of his research.
His findings get to the heart of the difficult choices facing older workers when they are laid off, no more so than amid the Great Recession when the jobless rate among people over age 55 hit a record 7.3 percent. Rutledge tracked individuals between 55 and 70 who lost their jobs between 1990 and 2012. …Learn More
October 31, 2013
Fraud Scares Off Stock Investors
The evidence is clear: fraud causes investors to shed their shares of stock.
When the stock market is booming, fraud swirls unnoticed beneath the frothy surface. Only when the market busts, as it did in the fall of 2008, are allegations of fraud and financial shenanigans exposed to the public.
When they are, and rattled investors realize what has taken place, they decrease their stock holdings – whether they own shares in any of the fraudulent companies or not – according to researchers in Stockholm and at the University of Minnesota.
Their study analyzed changes in equity holdings among U.S. households in response to more than 700 Securities and Exchange Commission charges and other reports of fraud from 1984 through 2009. The researchers focused on investors state by state, based on the assumption that allegations of fraud at local companies were more visible and would be more likely to affect an investor’s decisions. They also controlled for economic effects, which can influence investors’ decisions.
Their findings are:
- Reports of fraud in a given state made investors in that state less likely to hold stocks. …
October 3, 2013
Compulsive Spender? Blame Your Parents
There’s a bright line between an impulse purchase and compulsive spending.
When something new catches her eye, the impulsive buyer snaps it up and enjoys the splurge. There is no such enjoyment for the compulsive buyer. The act of buying temporarily alleviates her anxiety but she inevitably feels guilt or regret.
A new study explores the childhood experiences that lie at the root of why some people – women more than men – develop these damaging spending problems, which can lead to enormous debts and derail plans to save for the future.
The specific goal of the study, based on surveying 327 college students, was to shed light on the emotional pathways that can lead to compulsive buying, explained researcher Anil Mathur, a marketing professor at Hofstra University. The experiences the researchers associated with this behavior include disruptive family lives, more controlling parents, and teens who seek out peers to support their spending. …Learn More
September 26, 2013
Social Security Claiming and Psychology
It’s common for people to begin collecting their Social Security benefits soon after they turn 62, ignoring the financial planners and retirement experts urging them to postpone and increase the size of their monthly checks.
A new study has uncovered four powerful psychological traits that influence this decision: the individual’s expected longevity, his fear of loss, whether he perceives the Social Security system as fair, and patience.
The study surveyed some 3,000 people, primarily in their 40s and 50s. This is a good age to ask about Social Security, because claiming the benefit is a few years away, “but they’re thinking more about it,” researcher Suzanne Shu said when presenting the findings at an August meeting of the Retirement Research Consortium in Washington.
In an online survey, Shu, who is from the University California at Los Angeles, and John Payne, from Duke University, posed a series of questions designed to understand the psychology of the individuals they were studying. They also asked when they planned to claim their Social Security and then determined which psychological traits were linked to those who said they planned to file early.
Four influences on claiming came out of their preliminary findings:
Fear of loss. People who have a stronger aversion to financial loss also tended to say they would claim earlier. To them, the researchers said, a delay in receiving their benefit checks “looks like a potential loss.” …Learn More
August 20, 2013
What’s Your ‘Money Script’?
Our subconscious often stands in the way of our conscious efforts to save for college, prepare for the future, or spend what we’ve saved once we retire.
Some psychologists and financial planners believe these roadblocks are rooted in an individual’s “money script” – the story about money that we’ve told ourselves repeatedly since childhood. They’re typically passed down from our parents, extended family, or culture, and they are extremely difficult to change.
Writing in the Journal of Financial Planning, two experts in financial psychology, Bradley Klontz and Sonya Britt, presented their research associating three specific money scripts to poor financial behavior. Their study was based on a survey of 422 individuals who were largely middle-aged, white, and highly educated.
Click on a money script in one of the boxes below to read their descriptions of each one, excerpted from the November JFP article, to see if any apply and to learn how they affect the way we relate to money.
The researchers found that one person can hold multiple scripts, and these scripts can even contradict each other. …Learn More
July 23, 2013
The Aging Mind and Money
As we age, the things we forget are at first laughed off as “senior moments.” But when forgetting to send a birthday card becomes forgetting to pay the mortgage, the natural cognitive decline that accompanies aging becomes a serious financial issue.
With Americans living longer and an estimated 10,000 baby boomers turning 65 every day, a spate of fresh research has examined how and whether older brains can handle the challenges of modern financial life. But what the researchers have found out so far about the aging mind and money is somewhat of a mixed bag.
First, the bad news. Diminished cognition is an increasingly important concern in the financial arena, because the choices faced by retirees are getting ever more complex. One recent survey of people either experiencing cognitive decline themselves or observing it in a family member pinpointed the kinds of financial decisions that older people find difficult.
Among those surveyed, 41 percent said they or their family member forgot to pay their bills and 14 percent paid the same bill twice, according to the National Endowment for Financial Education and Harris Interactive. More than one-third had trouble with simple math or made rash purchases.
Retirees today face bigger financial challenges than that if they have to juggle their 401(k) investments and withdrawals. This is a change from the days when an employer simply issued a check every month from the defined-benefit pension plan, said Laura Bos, AARP’s acting vice president of financial education and outreach. …Learn More
June 25, 2013
401(k)s Stall, Post-Auto Enrollment
Seven years after Congress encouraged employers to automatically enroll their workers in the company 401(k), the retirement fix has run out of steam.
Corporate America rushed in to adopt the feature in their 401(k) plans after the Pension Protection Act (PPA) made auto enrollment more attractive by giving employers that used it a safe harbor from non-discrimination rules governing their benefits.
Immediately after the PPA provision became effective in December 2007, employee participation in 401(k)s increased. But since that initial bump, it’s been virtually flat for years.
In 2008, participation increased to 73 percent of all employees in workplaces that offered 401(k)s, up from 68 percent in 2007, according to Vanguard Group Inc.’s new “America Saves 2013” report, which provides a decade of participation rates for its large data base of clients.
Fast forward to 2011: participation was 74 percent. It has barely budged. (Last year, participation was 68 percent, but Vanguard said past experience indicates this figure will rise to roughly the same level when all of its clients turn in their data). …Learn More