Image of a tax refund check

Extra in Refund Checks Spurs Savings

A breakthrough experiment determined that some low-income tax filers are willing to save part of their IRS refund after all.

What separates savers from non-savers is each individual’s own “mental accounting.” What specifically influences them is whether their refunds exceeded their anticipation.

The research found that 7 percent of all low-income filers saved part of their refunds. But 12 percent of people who got more than they’d anticipated agreed to save – they did so by opening a savings account or buying a US savings bond or certificate of deposit. Only 4.5 percent of those who got the same as, or less than, anticipated, saved part of it.

“At tax sites, most people don’t save,” said Michael Collins, director of the Center for Financial Security at the University of Wisconsin, Madison. “But if you target the right people you might find some savers.” His research controlled for income, demographics and the refund amount. …Learn More

For Many Elderly, Little Left as Life Ends

About half of the elderly living alone and one-third of elderly couples have less than $10,000  left in their savings and investment accounts just before they leave this world.

These grim statistics may be a more accurate gauge of retirement survival than the balances Americans have accumulated as they enter retirement, a pursuit that pre-retirees and the financial-services industry tend to focus on.

To determine where retirees wind up financially, economists James Poterba at the Massachusetts Institute of Technology, Steven Venti at Dartmouth College, and David Wise at Harvard University crunched a mass of data.  Tracking a nationally representative sample of middle-aged and older Americans, they tabulated the financial assets held by elderly couples and the elderly living alone as they approached retirement, retired and aged, and when they were last observed in the sample.

“What we take away from this is that a significant number of households have a very small cushion if they encounter any kind of financial need,” Poterba said in a telephone interview last week, referring to a new working paper, “Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts.”

The following is a small slice of what the researchers found in the last years before the elderly died…Learn More

Two cartoon birds, one black, one white, sitting on a branch.

Will Saying “I Do” Affect Your Saving?

The single-married divide is dramatic: single adults between the ages of 22 and 35 are far less likely to have retirement savings accounts than are married people their age.

This difference, which is most pronounced for women but also true for men, highlights a conflict between two mega-trends. The number of single Americans has surged to nearly 100 million – 43 percent of the adult population. Yet they are less likely to save at a time that all young Americans face greater responsibility for funding their own retirement than any prior generation.

About 22 percent of single women have employer-sponsored retirement accounts, compared with 44 percent of married women. For single men, only 28 percent have employer accounts, while 44 percent of married men do, according to a February paper in the Journal of Marriage and Family by researchers at the Social Security Administration (SSA).

“By highlighting the link between marriage and retirement savings in young adulthood, our analysis identifies an often-overlooked economic outcome related to marriage,” SSA researchers Melissa Knoll, Christopher Tamborini, and Kevin Whitman write. Data for their sample of 3,894 people came from the Federal Reserve’s Survey of Consumer Finances in 2001, 2004, and 2007.Learn More

Married Women Gain on Singles

iStock_000018997190_SmallFor decades, single women earned much more than married women over their working lives. But new research on historical wage trends finds that the earnings gap is finally closing.

Wages for married women without a college degree have increased faster over the past 50 years than wages for their single coworkers without degrees, making them nearly identical. While single women with a college degree still earn more than married women with a degree, the gap has also closed dramatically: Single women earned $1.12 for every dollar earned by married women in 2006, compared with $1.30 for single women who entered the workforce in the early 1960s.

Married women “have caught up tremendously,” said Chinhui Juhn, labor economist at the University of Houston, who conducted the research with Kristin McCue at the US Census Bureau for the National Bureau of Economic Research. …Learn More

A stack of different colored credit cards.

Research Illuminates Credit Card Habit

It’s 2012, so kiss the money spent last month goodbye. But if any skeptics out there still need confirmation, here it is:

Academic research shows that compulsive purchases are more likely with credit cards, which put distance, in space and time, between the act of buying the item and paying for it.

“The pain of paying is somewhat dulled” by using plastic, Priya Raghubir at New York University and Joydeep Srivastava at the University of Maryland, show in their research paper titled, “Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior.”

If reducing your use of credit cards – even converting to a cash budget – is a New Year’s resolution, click “learn more” at the bottom of this post to see six previous articles on Squared Away about credit card behavior and psychology. They might help readers better understand a bad habit many of us share. …Learn More

A bill with a minimum payment of $20.00, and the corner of a $20 bill.

Card Minimums Cause Puzzling Behavior

What is it about the minimum payment on credit card statements that makes people act so crazy?

Two years ago, Neil Stewart, a psychologist at the University of Warwick in the United Kingdom, confirmed his own and some behavioral economists’ suspicions: when the minimum payment line was entirely deleted from statements, cardholders paid 70 percent more.

The holiday shopping season is in full swing, underscoring how important this initial finding was. Credit-card companies set their minimum payments extremely low, significantly increasing customers’ total payouts over the long term – paying the minimum causes interest costs to accumulate faster.

Stewart and his colleagues have now advanced his prior research by testing how card-carrying Americans and British would react to different levels of minimum payments. The result this time: the higher the minimum, the less people paid.

“We’re not entirely sure what’s going on in people’s heads,” said co-author Linda Salisbury, a professor in the Carroll School of Management at Boston College. The key, however, is a well-known psychological concept called “anchoring,” she said. …Learn More

Three older people laughing in rocking chairs.

Long-Term Care: To Buy or Not to Buy

Let’s face it: thinking about long-term care insurance, nursing homes and home health aides is depressing.

It’s no wonder that just 10 percent to 12 percent of America’s elderly population has purchased a long-term care policy.

More are thinking about it though: New research shows that 40 percent of people 50 years or older who were surveyed had “thought a lot about needing long-term care” if they were to become ill in old age.

This research delved into the factors driving individual decisions about whether to buy long-term care coverage – or not buy. The decision “depend(s) on a complex amalgam of many different factors,” concluded a conference paper based on research conducted by the NBER Retirement Research Center.

Here are some of the findings in the paper, by Jeffrey Brown at the University of Illinois, Gopi Shah Goda at Stanford University, and Kathleen McGarry at the University of California at Los Angeles: …Learn More

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