College graduates learn very quickly that paying hundreds of dollars toward student loans each month makes it difficult to afford things like a nice apartment or a car.
But they might not appreciate the long-term consequences of their record levels of borrowing: college debt is an added threat to their retirement security, according to a new study by the Center for Retirement Research.
The researchers gauged the debt’s impact by looking down the road to retirement and projecting what would happen if working people of all ages had started out with the same profile as young adults: 55 percent of today’s 20-something households have student debt, and they owe $31,000, on average.
College debt has a bearing on retirement security through two avenues. First, money going into loan payments is not available for a retirement savings plan. Second, lenders place limits on how much total debt a homebuyer can have, forcing many borrowers to delay home purchases; and getting a home loan would be very hard for the 17 percent of student loan borrowers delinquent on their debt.
Based on these assumptions and using 2013 data, the Center’s National Retirement Risk Index shows that those at risk of a lower standard of living when they retire would increase sharply to about 56 percent of working U.S. households – compared with 52 percent at risk when the student loan projection isn’t figured into the NRRI calculation.
This “represents a substantial increase in the already alarming rate of households at risk,” said the Center, which supports this blog. …Learn More
This was going to be a quick blog post about the new student loan repayment program rolled out by the federal government in January. But the differences between it and the seven plans that preceded it were too confusing to figure out on a tight deadline.
This isn’t just the view of one cranky blog writer. Craig Lemoine, a financial planning professor and student loan expert at the American College of Financial Services, which trains financial planners, also admits to being confused about the repayment options, which keep increasing in number.
If Lemoine were a student, he asked, “How on earth would I know which one to pick?”
His confusion pales in comparison with that of a lovely and loved young member of my family. She’s vague on the details of how her own student loans work. Here’s a rough approximation of our recent telephone conversation: …Learn More
It probably doesn’t feel like it, but workers got a decent pay raise in 2015.
Inflation last year was an improbably low 0.7 percent, and the fairly strong job market helped, too, by pushing up average hourly wages by 2.6 percent. Together, these translate to nearly a 2 percentage point increase in workers’ pay. Wages rose again in January by one-half percent, which was the second-best monthly increase in the current economic expansion. Minimum wages are also going up in many states.
It gets even better, based on an analysis by the American Institute of Economic Research (AIER) in western Massachusetts. An inflation measure designed by AIER that it calls the everyday price index, or EPI, actually declined last year. As its name implies, the EPI gauges changes in prices for things that are necessary for daily living, such as utilities and groceries, and excludes infrequent big-ticket items such as cars, homes, appliances, and even clothing. For this reason, it also weights gasoline more heavily than the standard consumer price index (CPI). The EPI declined 1.4 percent for the 12-month period ending in November, the latest data available, compared with the 0.7 percent increase for the CPI. …Learn More
Sitting at her computer in the oversized studio apartment she shares with her boyfriend in Portland, Oregon, Melanie Lockert received confirmation on Dec. 10 that her ordeal was over: $81,000 in college and graduate school loans were finally paid off.
She had two reactions. The first was an existential panic. “Who am I without debt?” the 31-year-old asked herself. Then a grin spread across her face. “I started dancing and screaming in my apartment. It was such an amazing moment, and I felt incredibly happy to be done with this,” she said.
Recent college graduates might despair that their day of liberation is far away or might never come. But Lockert’s single-minded focus on demolishing her debt, particularly by accelerating her payments recently, provides a roadmap – and some hard lessons – for those facing a seemingly endless string of monthly payments.
Lockert’s path followed a zigzag pattern, which she documented in a Dear Debt blog that she started writing in 2013. Being debt-free was not her first priority when she packed up her undergraduate loans and moved from California to New York in 2010 to attend graduate school – a decision that would more than triple her total student debt. Paying off her loans required a lot of patience and sacrifice, some risk-taking, and brutal self-honesty. She concluded that she couldn’t accomplish her financial goal if she pursued a career in the field she had studied in college. … Learn More
The above video qualifies as Personal Finance 101 – one critic dismissed it as nothing more than “common sense.” But that’s appropriate for the audience and worth sharing with teenagers and young adults in your life who are just starting on a financial path.
The speaker, Alexa von Tobel (three years before she agreed to sell her online advisory company to a major insurance company for millions of dollars) provided common sense goals for people who get their money the old-fashioned way – one paycheck at a time.
She proposed these five financial priorities (with minor alterations by Squared Away):
Follow a budget.
Have an emergency savings account.
Strive to become debt-free. Pay credit cards in full.
Some Boston University students cruise city streets in their BMWs or Lamborghinis. Three of Donald Trump’s five children have joined the family business so far. And the financial media are full of useful advice for parents who might want to buy a house for their adult offspring.
Nature versus nurture? Not surprisingly, nurture won out when researchers applied this question to who has more influence on the wealth of young adult Swedes who were adopted as children – their biological parents (nature) or their adoptive parents (nurture).
Wealth “is not due to the fact that children from wealthier families are innately more talented,” the international team of researchers concludes. “Instead, it appears that even in a relatively egalitarian society like Sweden, wealth begets wealth.”
While this might seem obvious, there had been surprisingly little research on the topic, which is gaining prominence here as U.S. wealth inequality widens. The study used an unusual Swedish data source that allowed the researchers to compare the wealth of adopted children with the wealth of both their adoptive and biological parents. The adoptees’ average age was 44. …Learn More
Brandi and Frank, the hypothetical couple in the above video, are drawn from extensive nationwide interviews with real Americans who work extremely hard, live modestly, and carry their financial anxiety through the day.
Ten of these families were also featured in written profiles by the U.S. Financial Diaries project. Like millions of working Americans, these families are buffeted by economic forces ranging from stagnating paychecks to a scarcity of employer benefits in low-wage jobs. The project identified common traits running through their financial lives.
They are continually trying to improve their lot, with education or by taking on extra jobs and by saving. Retirement saving, however, is a luxury – their saving is done to pay the unanticipated emergency or surprise expenses that inevitably crop up, according to the Diaries, a joint project of New York University’s Financial Access Initiative and the Center for Financial Services Innovation.
Saving for the short-term is also necessary because their sources of income can be erratic, requiring tricky rearrangements of their household resources. When they incur on-the-job expenses, employers’ reimbursements are often slow to arrive. Their monthly expenses often exceed monthly income, which can lead to late payments of utility bills or delays in medical treatment.
The following are short descriptions of some of the families profiled in the Diaries’ worthwhile project …Learn More