Father and son cooking together

The Family That Dines Together…

New research adds a dash of spice to our understanding of how people handle their personal financial matters: families who dine together grow wealthy together.

Three professors at the University of Georgia have discovered that families who commit to gather regularly around the dinner table – or, presumably, dine out or cook together – are better prepared financially and will accumulate more wealth faster.

As with any statistical analysis, their research can’t prove cause and effect.  Is it that dining together causes wealth to go up, or is that families who know how to handle their finances also tend to be the type of people who enjoy meals together?…Learn More

Friends around a dinner table

Young Adults Face Unique Money Issues

Many young adults right out of college are planning career moves or marriage – while grappling with complex financial issues.

Student loans weigh them down. And despite the improving job market, it’s still tough to find a job. Wages and salaries for those who are employed are stagnant in many industries. Thanks to the proliferating opportunities for e-shopping, young adults also face more temptations to buy than any previous generation.

“I feel like I’m definitely in the lion’s den,” said Eric Bell, who, at 28, is trying to get his financial education website for 20-somethings, YoBucko, off the ground. A former private banker, he is also looking for a job in his field, paying off student loans, and cheering on his girlfriend in her attempt to buy her first home.

Below are a few previous Squared Away posts written with young adults in mind. A link is provided at the end of each article’s title, or you can join the conversation on Facebook.

  • Young Adults Adrift in E-Spending Ocean
    PayPal, Groupon, smartphone apps that pay for store purchases, online retailers galore – technology has made shopping a breeze. Young adults unfamiliar with the old-fashioned cash economy may not realize how damaging electronic commerce can be to their budgets. …

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Mortgage Refi Dilemma: 15 or 30 years?

My mortgage broker is a patient man.

I kept changing my mind, because this refinancing was about so much more than whether to go with a 15- or a 30-year fixed rate.  Now that the loan is about to close, I worry that I made the wrong decision.

As a baby boomer, all financial decisions suddenly spin around retirement.  Many boomers now own their homes free and clear.  I am not one of them, and it seems critical to get this refinancing right, since mortgage interest rates may not hit these historic lows again for a long time.  For this reason, and because house prices have plummeted, the 15-30 dilemma may prove important for cash-strapped, first-time homebuyers too.

“I don’t think [rates] are going to race up in the next 6 months, or even year and a half, but things are definitely headed upwards,” predicted Susan Honig, owner of Veritana Financial Planning Inc. in Burbank, Calif.  “And after that I think rates are going to fly.” …Learn More

Cartoon drawing of a family

Birth Order Matters

Evidence, though scant, suggests that financial shortcomings may be related to birth order.

But there’s plenty of non-financial research indicating that the stereotypes linked to first-borns and “later-borns” are often on target. First children who are best-positioned to relate to their parents often become high achievers (Abraham Lincoln or Warren G. Harding), while their attention-seeking youngest siblings tend to be more creative, social, or funny (Jay Leno or Stephen Colbert, who is the youngest of 11 children).

To get at financial behaviors linked specifically to each ranking in the birth order, a 2011 study found that later-borns tend to be the big risk takers. And a February Bankrate.com article featured psychologists and financial advisers who said that they have observed clients’ money problems that they believe are linked to birth order. Below are excerpts from the Bankrate.com article:

Responsible first born: “More often than not, being a perfectionist leads to burnout and giving up or setting unrealistic financial goals,” says Derrick Kinney, an Ameriprise financial adviser at Derrick Kinney & Associates in Arlington, Texas. “That may sabotage your finances.” …Learn More

Bracketology Simulates Stock Picking

Odds, outliers, random – such terms are batted around like gnats among the economists and statisticians here at the Boston College research center that sponsors this blog. Recently, we tossed around some parallels between the art of NCAA Basketball Bracketology and picking stocks or actively managed mutual funds.

Here’s our Final Four:

  • A fresh printout of an unscrawled bracket is like a new pool of money to invest – it engenders the hope of winning big. The thrill can give way to defeat — very suddenly.
  • Admit it: Most people fill in their bracket winners without doing any research on the teams they’re selecting. (And who reads a prospectus?)
  • A team (or stock) on a winning streak is a prime candidate for losing – and it takes only one in the single-elimination championship.
  • Past performance is not a reliable predictor of playoff results. Remember the 2011 NCAA basketball champion? UConn lost last week. And I won’t even mention the Duke Blue Devils.

Send in your own ideas to Squared Away! To do so, click “Learn More.”Learn More

Buy, Hold and Be Happy?

When an investor selects a mutual fund that’s hot, it usually backfires.

Morningstar Inc. generated the evidence for Squared Away: it essentially analyzed returns for two types of investors in the nation’s 25 largest fund companies – from PIMCO, Fidelity Investments and Vanguard Group on down. Using fund flow and performance data, it compared returns to a theoretical investor who stayed put for an entire decade to the returns that investors in funds actually experienced, given that they move into and out of funds.

Investors earned 3.8 percent per year, on average, over the decade ending Dec. 31, 2011, the Chicago fund tracker said. If they had stayed put, they would’ve earned 5.3 percent. The results were not equal, because some of us make brilliant moves but more of us make dumb moves, such as buying high and selling low.

The gap – 1.5 percentage points – “is bigger than [fund] expense ratios,” said Don Phillips, Morningstar president of fund research. Investors “really hurt themselves that much.”

To be fair to 401(k) investors, their inertia is great. Those who select funds from employer-run plans typically buy and hold. But more money – about $1 trillion more – sits in Individual Retirement Accounts, where investors are more likely to trade on their own or to have brokers or advisers recommending new funds, whether motivated by their own commissions or their clients’ goals.

To try to improve returns, Phillips listed three types of funds investors should avoid: …Learn More

Fraudsters Hone Art of Disguise

Tried-and-true financial frauds – Ponzi schemes, high-yield investments, and “pump and dump” stock scams – have victimized unsuspecting targets for decades, even centuries.

These well-known frauds are effective, because con men change their disguises so they won’t be recognized. Six common disguises are detailed in a report I wrote for the Financial Security Project at Boston College’s Center for Retirement Research, which hosts this blog.

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