When people are asked why they are stressed, money – or the lack of it – is often at the top of the list.
Ask psychologists why this is so, and many would point to a deeper explanation: our parents.
How and whether our parents talked about money, as well as the emotional tenor of these conversations – or silences – are critical to how we manage money as adults.
Sonya Britt, a certified financial planner and associate professor at Kansas State University, explained how these family dynamics play out in a research summary written for financial planners, under a contract with the federal Consumer Financial Protection Bureau.
Britt describes a two-way street between parent and child. Parents signal their attitudes about money, either through purposeful and explicit messages or in unconscious ways. Meanwhile, children learn the behaviors that take them into adulthood by observing what parents do. These observations can override financial knowledge in shaping behavior.
For example, college students who remember that their parents had healthy credit card practices, such as living within their means, are more successful at keeping their college debt under control. Generally, parents are advised to talk about financial matters with their children – it’s known as parental financial socialization. Avoiding such conversations has a negative effect that can “wreak havoc on children as they age.” In extreme cases, silence can lead some to hoard money as adults and others to be careless spenders.
Financial dependence in post-adolescence is an emerging issue as young adults extend the amount of time they live in their parents’ homes, often to cope with college debts and inadequate employment options. Young adults whose parents provide financial help tend to develop dependency. In contrast, the offspring of people with fewer financial resources – who can’t help their children – learn more quickly to become financially independent. … Learn More
As the U.S. Department of Labor video above makes clear, the population of Latino workers is exploding.
By 2024, nearly 33 million Latinos will be working in this country – they will have doubled their labor force share to 20 percent, from just 10 percent in 1995.
Despite their expanding presence in the labor market, Latino-Americans face significant retirement challenges.
Chief among them is that they don’t have the same access to traditional pensions and retirement savings plans that white Americans have, primarily because of where Latinos tend to work. Two out of three Latino workers – many people prefer the term Hispanic – lack a 401(k)-style plan in their jobs, the U.S. Social Security Administration and other sources report.
The National Hispanic Council on Aging recently called the older Hispanic population “the least prepared for retirement of any ethnic group.”
One reason cited is that they are more likely to work for small businesses, which often don’t set up a plan. Latinos are also disproportionately employed in low-paid cleaning, landscaping, and food services occupations, and a mere 12 percent of all low-income older individuals are saving for retirement. Median earnings for Latino-Americans, at $45,000 per year, are about one-third lower than median earnings for whites, according to the U.S. Census.
Things are rapidly changing, however: more Latino-Americans than ever are attending college and completing their degrees, which will improve financial security for this college-bound group and their families.
But while Latinos have, like past waves of immigrants, fully integrated into American society in recent decades, many have not yet integrated into the mainstream institutional structures that support retirement. Until that happens, the lack of access will create greater financial challenges for the Latino community.Learn More
Parents have finished the summer college tours with their teenagers. Now comes the hard part: figuring out how to pay for college. But Judith Ward, a senior financial planner for T. Rowe Price in Baltimore, urges parents to prepare for this moment well before their child’s high school graduation to help minimize college costs when the time comes.
Squared Away interviewed Ward, whose advice comes from a combination of her professional experience and putting her own two kids through college. They are now 23 and 27, employed, and paying back modest student loan balances.
Your company’s 2016 survey of parents and children between ages 8 and 14 about paying for college points to a disconnect between what young kids are expecting in terms of paying for college and what their parents are planning on.
Yes, we found in our survey that 62 percent of kids expect their parents to cover most of whatever college they want, but 65 percent of parents say they’ll only be able to contribute some to their college. There’s definitely a disconnect. But it’s easy to rectify – just start talking to your kids about college.
Question: Can parents really talk to their kids about college at 8, 9 or 10? And what do they talk about?
In fairness to the kids who answer these survey questions, they have no idea what the cost of college is. It’s not the enormous number it is to their parents. But start when they’re young by having conversations that are not necessarily about the cost of college. Just start making college part of the conversation and sharing your own stories. That will have them thinking about college and thinking, “I’m going to be expected to go to college.” …Learn More
The value that annuities can provide to retirees may not be obvious, but it is real.
Annuities are also becoming increasingly valuable as fewer people have that traditional source of reliable retirement income: an employer pension.
Insurance company annuities, like pensions, pay out a monthly income no matter how long you live. These payments come from three sources: 1) the initial amount invested to purchase the policy; 2) the interest earned on the amount that’s invested before it is paid out; and 3) “mortality credits.”
These mortality credits are the essential element that protects retirees from outliving their savings. As a retiree moves through her 80s, a growing share of the other people in the annuity pool die. The funds they leave behind in the pool are used to continue making monthly payments to those who are still living.
This is the starting point for a new summary of academic research on annuities by the Center for Retirement Research at Boston College, which supports this blog. To fully understand the individual studies, it’s necessary to read the report. But here are some takeaways: …Learn More
When a low-wage worker has a dental emergency or the car breaks down, it can set off a chain reaction of financial problems. Losing a job due to that car problem is a catastrophe. It’s not an exaggeration to say that having just a little money in a bank account is a lifesaver.
But low-income Americans are discouraged from saving due to the asset limits in joint federal-state assistance programs such as food stamps, Medicaid, and Temporary Assistance to Needy Families. These asset limits create a Catch-22: if the recipient builds up the savings crucial to their financial well-being, they lose their assistance, which is also critical to their well-being.
This illustrates just how difficult it is to design programs to help the poor and low-wage workers. Without asset limits, a relatively well-off person who earns very little would qualify for food stamps. But using asset limits to restrict who qualifies can harm our most financially fragile populations.
New research looking into the impact of asset limits among recipients under the Supplemental Nutrition Assistance Program (SNAP) – once known as food stamps – confirms that asset limits inhibit saving.
“Having a policy where people don’t save or draw down their assets before they apply for benefits can really harm long-term economic success for these families,” said Caroline Ratcliffe, a senior fellow at the Urban Institute who conducted the study. …Learn More
While student loans are a painful, long-term expense, they are also an investment in one’s career and earnings prospects. But what does lavish spending on a wedding provide?
It can lead to divorce, according to a study by Emory University researchers Andrew Francis and Hugo Mialon. More interesting, they suggest that the stress that comes with wedding debt might be the underlying cause for the unhappy outcomes.
Weddings, which peak in early summer and surge again in the fall, have become more elaborate over the years. Engagement rings usually have diamonds – that wasn’t always the case. The average expense for a wedding and reception in this country is now $30,000.
But the researchers found that women who spend more than $20,000 on a wedding were nearly four times more likely to become divorced than women who spend under $10,000. In the case of men, buying a more expensive engagement ring was linked to a higher divorce rate.
They based these findings on data from their own random survey asking 3,151 adults about their wedding costs and current marital status.They controlled for education, household income, whether the person was employed and other things that play a role in whether a couple stays married.
Stress may be the undercurrent that explains their findings: couples who spend more money are also more likely to report being “stressed about wedding-related debt,” the researchers found.
The links between marriage and money are a perennial topic in academic literature. Other studies have shown that divorce creates financial problems, particularly for people closing in on retirement. It just might be that excessive spending on a wedding – usually a couple’s first major expenditure – gets a marriage off to a bad start.Learn More
Rather than put his money in a bank, my cousin, who’s in his mid-40s, makes loans in $25 increments on a peer-to-peer lending website. He decides on the amount of risk he’s willing to take on – and the riskier the borrowers he chooses, the more he earns on his “savings.”
My cousin’s $25 investments illustrate how much our consumer finance market has evolved over several decades. We all embrace the convenience. Car loans are a more affordable way to buy a vehicle, Internet banking lets homebuyers get several mortgage quotes at once, and paying with cell phones is much easier than paying with cash or even credit cards.
But all this innovation has a downside. One example is the change from installment credit with fixed payments in the early 1960s to revolving credit, which lets consumers choose to pay a small required minimum – and increases the high credit-card interest that undisciplined borrowers pay. A recent and egregious innovation is companies that purchased lawsuit settlements from victims of lead paint poisoning for a fraction of their value. Both innovations offer convenience in exchange for personal financial impacts that are either excessive or difficult to recognize.
A primary outcome of all this financial innovation is that U.S. households “in aggregate have taken on greater risk,” conclude professors at the Harvard Business School in their 2010 paper, “A Brief Postwar History of US Consumer Finance.” Consumers now have an enormous amount of latitude – arguably too much latitude – to borrow, shift assets, save for retirement (or not), play the markets, or engage in peer-to-peer lending, they say.
As a result, risks pervade our investment portfolios, savings and retirement accounts, borrowing decisions, and how we purchase consumer goods. And that’s the problem. …Learn More