Our personal biases can play havoc with how we handle our finances.
Two such biases have long been suspected as obstacles to saving for retirement. The first is a tendency to procrastinate on decisions that may benefit an individual in the long run, but also involve short-term costs, like saving for retirement – economists call this “present bias.”
The second bias is a failure to perceive the power of compounding investment returns and how this can build wealth over decades of saving.
But the impact of these biases on how much people actually save wasn’t really understood – until now. A new study by a team of economists from Stanford University, the University of Minnesota, the London School of Economics, and Claremont Graduate University finds that people who are not blinded by these two biases in particular have saved significantly more for retirement, largely because they start putting money away earlier in life.
The researchers based their findings on a big sample of nearly 2,500 people in online surveys in 2014 and 2015; the average age was about 49. To determine the consistency with which they value the present over the future, the survey asked the participants a series of questions about whether they would, for example, rather have $100 now or a larger amount on some future date – people who want their money now are a bit like Wimpy from the Popeye cartoons, who became famous for wanting a hamburger now but offering to pay for it later. The survey questions about compounding revolved around estimating an account’s future value, using a variety of different interest rates and time periods. … Learn More
Oprah has done it – in the form of a $490,000 house for her newly discovered sister. Former NFL cornerback Phillip Buchanon just wrote a book complaining about it. And Charles Barkley is characteristically blunt about it.
“When you continually come to me for money, that’s what ruins relationships,” Barkley explained on NBA TV. “I probably got $4-5 million I lent to friends and family I’ll never see again.”
No one is immune to a relative’s appeals for financial help. But this is a perennial and far more prevalent issue among black Americans – and not just the ultra-rich like Oprah and Barkley – according to Rourke O’Brien at the University of Wisconsin.
What O’Brien calls “informal assistance” exists, in part, because giving bestows non-monetary benefits on the givers as they foster emotional support and solidarity among their kin. But as a personal financial issue, the expectations and feelings of obligation are very challenging – and a topic of conversation in the black community.
One woman commenting online said she was looking for some useful advice about how “to be more comfortable with saying ‘no’ ” to her loved ones. …Learn More
Most of us know how distracting and stressful it is when our credit card balance creeps up or there’s a gap between a bill’s due date and when our paycheck gets deposited.
But financial stress can also create serious problems at work like absenteeism, problems that can turn around and compound the financial problems.
More than one in four employees who said they deal with “financial stress” admit that it interferes with how well they do their jobs, says a new survey of 5,000-plus workers by the consulting firm Willis Towers Watson.
It also increases absenteeism. The study found that workers stressed about their finances are absent from work 3.5 days per year, on average – nearly double the absenteeism of people who are not stressed. And when the worriers are at work, they are “highly distracted” – this distraction can gobble up 12 additional days per year, interfering with how well they do their jobs, the survey found.
The workers expressed broader concerns than their unpaid bills, too, said Steve Nyce, a senior Willis Towers Watson economist. Many are very concerned about their long-term financial future and retirement. …Learn More
A nearly three-fold increase over the past decade in the number of fraud and related complaints filed with the Federal Trade Commission has pushed the total to 1.7 million filings in 2015, according to the government’s consumer 2015 data book released this month.
As Squared Away reported recently, older Americans are often the most vulnerable, as their cognitive abilities decline or they become more socially isolated. Not surprisingly, the FTC said Florida had the highest rate of reported fraud per resident last year (followed by Georgia, Michigan, Texas, and Nevada).
One reason for the increase in complaints is that people are increasingly aware of fraud and more likely to report it. Another is that fraud-reporting agencies such as law enforcement and consumer groups are increasingly aware they can file complaints with the FTC. But 1.7 million allegations of fraud, identity thefts, and other scams is, by any yardstick, a lot of complaints.
The typical loss was $400 for an individual fraud complaint. There is evidence that more people are getting savvy: a smaller share of the people who filed 2015 complaints said they turned over any money to their scammers than in previous years. … Learn More
This profile is the first in an occasional series about individual baby boomers who either have retired or are facing the retirement decision.
Jane Kisielius is at that age – 63 – when she is being pushed and pulled between the work world and the retirement lifestyle that her husband already inhabits.
She retired once – temporarily – in August 2014 from a stressful job as head of the nursing team for the public schools in Quincy, a suburb southeast of Boston. But with her administrative and nursing skills in such demand, she was quickly sucked back into the labor market, this time as a part-time coordinator of a wellness program for Quincy residents. She was asked to help run the new, grant-funded education program after bumping into the commissioner of the Quincy Health Department.
“The job fell in my lap,” she said. “It was kind of hard to pass it up.”
So here Jane sits, wrestling with when she’ll really retire, as she drinks her morning coffee at the kitchen table in her orderly home, a stone’s throw from the historic home of presidents John Adams and John Quincy Adams. …Learn More
Economists like to joke about free lunches. The subtext is that there’s a cost to everything.
A free lunch is also literally how high-pressure financial companies sometimes lure older Americans into a room to hear their investment pitches. The FINRA Investor Education Foundation says some 6 million older Americans have attended seminars in return for a free lunch. Every year, my mother’s retirement community outside of Orlando hosts a handful of these seminars, which are presented by financial firms, insurance companies, and even funeral homes.
FINRA warns that they can pressure seniors into making “unsuitable, even fraudulent investments.” The above FINRA video explains what’s behind the free-lunch presentations and proposes some questions that people can ask to determine the legitimacy of what’s being sold.
But it’s probably better to do what my mom does: find something fun to do instead.Learn More
Over the long Christmas holiday, I got a sneak preview of what retirement could be like. Frankly, it was a little boring.
I fully appreciate that most workers don’t have the perk provided by my employer, Boston College, which gives us generous time off between Christmas and New Year’s. By cashing in a few unused vacation days prior to Christmas, I was able to string together 16 glorious days off.
It felt like a lifetime.
After cleaning off my desk, running long-neglected errands, reading a book about the sinking of the Lusitania, wrapping gifts, stocking the pantry, going to a holiday party, exercising at the gym, seeing most of the 2015 Oscar contenders at local cinemas, and getting together with friends, I still struggled to fill my days. It’s even more challenging when the winter cold descends.
I’m developing a better understanding of why some people continue working well into their 60s, even 70s. Research covered in our prior blog posts shows that older workers are more likely to delay their retirement if they have more education. That’s because their jobs are often interesting. I’m a good example – blogging usually doesn’t feel like work. This is much different than trying to continue in increasingly difficult physical work, such as waitressing or working on an assembly line.
At age 58, my growing anxiety about retirement is in stark contrast to my husband’s anticipation that his rapidly approaching retirement – he’s 62 – will be nirvana. After three decades pouring his heart and soul into teaching high school biology in inner-city Boston, he relishes the prospect of a stress-free retirement collecting his pension. I’ve encouraged him to think about how he will be spending his winter days in retirement when activity becomes more important than the relaxation he craves in his time off now. …Learn More