A crowd of people rushing through the doors of a department store for Christmas sales.

United States of Credit

The holidays have arrived, and our credit cards are getting a workout. Sheldon Garon, author of “Beyond Our Means: Why America Spends While the World Saves” (November 2011), maintains that gift shopping isn’t only about giving – it’s our civic duty, we’re told.

Squared Away interviewed the Princeton University historian about world savings rates and America’s “democratization of credit.”

Q: Americans have tightened their belts. How does our current 4 percent savings rate compare with the rest of the world?

Garon: The Chinese save at extraordinary rates, about 26%. But that’s something that happens with Asian economies just as they’re taking off. The Japanese and Korean economies did that too. The really interesting place is continental Europe. . . . The United States should be going down in its savings rates, because we’re an aging society. But the Europeans should be going down even farther, because they have more rapidly aging societies and very low birth rates. But the German, French, Austrian and Belgian savings rates are around 10 percent – Sweden has gone up to 13%.

Q: How did debt become culturally acceptable here?

Garon: Before the 1920s, it was no honor to be indebted. When installment buying became popular in the 1920s, that was seen as an acceptable form of debt. But we reached a new stage in the early 1990s, when society considered you stupid if you didn’t take on more debt. Why would you save up for something if you could borrow so easily?

What do you think of Garon’s take on U.S. financial culture?   Squared Away would like to hear your comments after you read the full interview.Learn More

Student Loans Derail Life Plans


Christi Longlois of New Orleans only slightly exaggerates when she says she and her partner “will be retired before we pay off our student loans.”

Longlois, who works at Tulane University, and Geneva Marney, who works at a non-profit, together owe $80,000 in student loans. Both in their 30s, they have more than 25 years of monthly payments ahead of them.

On their financial planner’s advice, they sold their house and began renting so they could make their $453 monthly loan payments, some of which funded Longlois’ graduate school, and pay their credit cards. They’d like to eventually send their infant twins to private school but don’t feel that’s very realistic.

In interviews with a dozen college seniors and young adults in their 30s, it became painfully clear that loan payments have blasted holes in many life plans – something their baby boomer parents didn’t even worry about. …Learn More

Occupy Wall Street protesters holding an American flag and a sign reading "We are the 99%"

How Rich is Rich?

Occupy Wall Street protesters have made their feelings known about the widening U.S. wealth gap.

So, what do the rest of us think?

A Harvard Business School professor – Michael Norton – and a behavioral economist – Dan Ariely – teamed up to ask people their preferences when it comes to the distribution of wealth. They found that Americans of all types and political affiliations “vastly underestimated” the magnitude of the difference between rich and poor in this country.

At a time many people are suffering in the slowing economy and languishing job market, it’s interesting to see a comparison between what Americans believe about U.S. wealth distribution and the reality they inhabit.

The American rags to riches myth endures – young adults are inspired by it; immigrants come here to pursue it; and millions play state lotteries every year in hopes of hitting the jackpot. Not surprisingly, the authors found that both rich and poor said some level of inequality is okay.

“This is an admirable part of America,” Norton said in a recent interview with Squared Away. “It’s just that people overestimate the extent to which it happens.” …Learn More

Less equals more.

Less is More

In this humorous Ted video, Graham Hill advocates minimalism as an alternative to consumerism and showcases his 420-square-foot apartment in Manhattan. His living arrangement may seem extreme but residents of Tokyo have been living small for years, and his main point is well taken: he has reduced both his living expenses and his environmental footprint.

Hill is a modern Renaissance man. He studied architecture, founded Treehugger.com to take environmental sustainability mainstream, and dreamed up the idea for those ceramic Greek coffee cups, a replica of the paper cups, found in art museum gift shops.

“From his New York home, he schemes daily about how he can help humanity avoid rapid extinction,” according to his bio.Learn More

Women Lag in Retirement Readiness

When it comes to retirement, we women are in lousy shape.

We live longer, so will need more money when we retire. Yet we work less over our lifetimes and earn 80 percent of what men earn while we are working. As a result, we’ve saved less in our 401(k)s and IRAs.

Not surprisingly, the rising economic insecurity among all Americans ushered in by the Great Recession is more pronounced among women, according to reports Monday by the Institute for Women’s Policy Research (IWPR) in Washington:

  • 58 percent of women interviewed by IWPR were concerned they would not have enough to live on in retirement, compared with 43 percent of men;
  • 47 percent of women lacked confidence that their resources would last throughout their retirement, compared with 35 percent of men;
  • 51 percent of women worried they would not be able to afford retiree healthcare, compared with 44 percent of men.

Financial data support women’s concerns. In 2010, the average balance in defined-contribution plans managed by Vanguard Group, one of the nation’s largest mutual fund companies, was $58,833 for women and $95,675 for men. The median balance was $21,499 for women and $33,547 for men.

Women’s personal retirement savings are even lower, relative to men’s, when one considers that women live much longer. Among women born in 1935, 51 percent are expected to live until age 85 – just 36 percent of men will, according to the Center for Retirement Research at Boston College, which hosts this blog. Fully 13 percent of women will make it all the way to 95 – only 6 percent of men will. …Learn More

A woman laying on the ground, exhausted.

Financial Decisions Wear Us Down

Are Americans suffering from financial-decision fatigue?

After the relative calm of rising financial markets though the 1980s and 1990s, Americans have lived through a series of booms and busts. First came the Internet boom of the late 1990s, which busted. Then the real estate market took off just as “emerging markets” plummeted. That was only a prelude to the worst financial-market collapse since the Great Depression. The stock market is now bouncing around like a bungee jumper.

Roiling markets in recent years have spurred decision after decision – about retirement, home buying, downsizing, mortgage refinancing, spending on large purchases such as a car, and where to find a good job.

Investors are advised to stick with a long-term plan and not react to every market fluctuation. In reality, there’s a history of research showing that dramatic gains and losses do cause people to change their behavior. Many Americans decided to abandon the stock market after the 2008-2009 decline, which pummeled 401(k) balances.

Researchers at Boston College’s Center for Retirement Research (CRR), which hosts this blog, identified a related set of decisions. The Center surveyed people who had lost 10 percent or more of their retirement savings: 57 percent decided to delay retirement, save more money, or both.Learn More

Why Baby Boomers Can’t Retire

A centuries-old trend of retiring at an earlier and earlier age has completely reversed, concluded a July report by the TIAA-CREF Institute.

In 1910, men didn’t retire until they were about 73 but that dropped to age 63 by the mid-1980s, the golden era for generous union- and employer-sponsored pension plans. Then the retirement age and labor force participation ages started heading back up, according to TIAA-CREF’s report, “Early Retirement: The Dawn of a New Era?” Women experienced a similar though less dramatic trend.

The report provided numerous explanations for this, including the demise of the mandatory retirement age for most American workers; the improved health of older Americans; and technology that has created options about when and where they work. Many retirees go from full-time work to part-time “bridge” jobs.

But what about the economic and cultural forces that have left baby boomers, myself included, financially unprepared for retirement? Delay for us isn’t a choice but a financial imperative. …Learn More

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