October 15, 2019

Does Increased Debt Offset 401k Savings?

Roughly half of U.S. employers with a 401(k) plan enroll their workers automatically, deducting money from their paychecks for retirement unless they explicitly opt out of this arrangement. This strategy is widely viewed as a good way to get people to save.

But auto-enrollment might not be as effective as it seems, if individuals are compensating for a smaller paycheck by borrowing more.

A new study of civilian employees of the U.S. Army used credit and payroll data to gauge whether debt increased for employees who were automatically enrolled in the federal government’s retirement savings plan. The researchers compared changes in debt levels for people hired after the government’s 2010 adoption of auto-enrollment with hires prior to 2010.

The good news is that since the broadest debt category, which includes high-rate credit cards, did not increase, it did not offset the employees’ accumulated contributions. Their credit reports showed no increase in financial distress either, the study concluded.

However, the findings for car and home loans were ambiguous, so auto-enrollment “may raise these latter types of debt,” said the researchers, who are affiliated with NBER’s Retirement and Disability Research Center.

If workers are, in fact, borrowing more, the question, again, is whether the new debt is offsetting the additional savings under auto-enrollment. Auto and home loans – in contrast to credit cards – are used to finance an asset that has long-term value. Whether these forms of debt improve or erode net worth depends on the asset’s value and whether the value rises (say, a house in a growing city) or falls (a car after it’s driven off the lot).

The researchers did not have access to data on federal workers’ assets, which they would need to see what’s happening to their net worth. This remains an important question for future research. …Learn More

October 3, 2019

The Secret to Feeling Younger

You’re as young as you feel!

This cliché is meant to be uplifting to older people. But it really just begs the question: what, exactly, is it that makes a person feel young?

Having a sense of control over the events in one’s life is the answer that emerged from a 2019 study of 60- to 90-year-olds in the Journal of Gerontology. “[B]elieving that your daily efforts can result in desired outcomes” lines up nicely with what the researchers call “a younger subjective age.”

This makes a lot of sense. Feeling in control becomes important as we age, because it counteracts our growing vulnerabilities – we can’t move as fast, hear as well, or remember as much. Wresting back some control can rejuvenate older people, instill optimism, and improve memory and even longevity, various studies have found. …Learn More

September 19, 2019

Many Demands on Middle Class Paychecks

Ask middle-class Americans how they’re doing, and you’ll often get the same answer: there are still too many demands on my paycheck.

Several recent surveys reach this conclusion, even though wages have been rising consistently at a time of low inflation.

Student loans trump 401(k)s. Two top financial priorities are in conflict: student loan payments, which people described as a “burden,” and saving for retirement, which they viewed as “important” in a TIAA-MIT AgeLab survey.

The debt seems to be winning: three out of four adults paying off student loans say they would like to increase how much they save for retirement but can’t do it until their loans are paid off – and that can take years. One woman described her loans as “draining” her finances.

A promising sign on the horizon is that some employers are finding creative ways to help employees pay down college debt, giving them more leeway to save money in their 401(k)s. But these efforts impact a small number of workers, and the amount of debt continues to rise year after year for every age group, from new graduates to baby boomers who helped send their children and grandchildren to college, a Prudential study found.  

Buying a house isn’t an option. The good news is that about half of Millennials already own a home. Most of the others want to buy a house but can’t afford it, 20- and 30-somethings told LendEdu in a survey. Their top reasons were student loan and credit card payments and a lack of savings, which is the flip side of having too much debt.

Millennials are also putting off other goals until they get a house – marriage, children, even pets. “It’s quite obvious that this uphill battle” and debt “is having secondary effects,” said LendEdu’s Michael Brown.

Medical debt looms large. Americans borrowed $88 billion last year to pay their hospital, doctor, and lab bills. That debt fell hardest on the 3 million people who owe more than $10,000, according to an estimate by the Gallup polling company and a group of healthcare non-profits. …Learn More

September 12, 2019

Social Casinos: Stay Far, Far Away

This report about online casinos is incredible.

The PBS Newshour reports that these gambling websites – for poker, roulette and slots – are able to target people who are the most vulnerable to gambling addiction. The video features a site that assigns VIP status to encourage vulnerable customers to keep playing.

That’s not the only problem. Customers pay real money to buy chips to gamble or cover their losses on the gambling site. But when the customer wins, the website “do[es]n’t pay real money. They only…give you virtual chips to continue to play on their apps,” said a Dallas woman who said she lost $400,000 while gambling online.

Only 1 percent of Americans are gambling addicts, so the problem, while very serious for them, is not widespread. However, in the video, Keith S. Whyte of the National Council on Problem Gambling said that online social casinos are far more addictive than brick-and-mortar casinos.

Whyte said these social casinos are not regulated. The social casino profiled in the video said that it strives “to comply with all applicable standards, rules and requirements.” …Learn More

July 16, 2019

Spotlight on Our Research, Aug. 1-2

Topics for this year’s Retirement and Disability Research Consortium meeting include the opioid crisis, retirement wealth inequality over several decades, trends in Social Security’s disability program, and the impacts of payday loans, college debt, and mortgages on household finances.

Researchers from around the country will present their findings at the annual meeting in Washington, D.C. Anyone with an interest in retirement and disability policy is welcome. Registration will be open through Monday, July 29. For those unable to attend, the event will be live-streamed. The agenda lists all of the studies.

Here are a few:

• Why are 401(k)/IRA Balances Substantially Below Potential?
• The Impacts of Payday Loan Use on the Financial Well-being of OASDI and SSI Beneficiaries
• The Causes and Consequences of State Variation in Healthcare Spending for Individuals with Disabilities
• Forecasting Survival by Socioeconomic Status and Implications for Social Security Benefits
• What is the Extent of Opioid Use among Disability Applicants? …

Learn More

January 17, 2019

Parent PLUS College Loans Can Spell Peril

A dramatic increase in 1993 in how much parents are permitted to borrow from the federal government for their children’s college is coming home to roost.

Since then, average debt through the parent PLUS loans has more than tripled, adjusted for inflation, according to a Brookings Institution report. About one in 10 parents owe more than $100,000. And as loan balances have ballooned, the rate of repayment has slowed.

Now that the college applications have been submitted, Allan Katz, a financial adviser in Staten Island, New York, has this advice for parents contemplating their next move:

PLUS loans should be avoided “at all cost,” he said. “A big part of my practice is avoiding PLUS loans.”

His dire warning stems from the 1993 change in the law, which made it easier for parents to get into trouble. The reform increased how much parents can borrow from $4,000 per year to whatever the teenager needs to cover his or her school expenses – regardless of the institution’s cost. Total borrowing per child used to be capped at $20,000 – there is no limit today. …Learn More

October 23, 2018

Video: How to Talk about College Costs

As the outlines of the student loan crisis were coming into focus, this blog featured a video of new college graduates dazed and bewildered by the size of their monthly loan payments and the intrusion on their lifestyles.

Beth Kobliner, a personal finance speaker and journalist, has a surefire antidote: talk to your teenager early and often so they know what they’ll be getting into if they borrow money for college.

She explains how to do this successfully in a new series of helpful, breezy videos.

She recommends that parents make the early conversations light and easygoing. Have the modest goal of encouraging your freshman in high school to start thinking about college broadly. Ask about his or her aspirations, interests, and the choice of Ivy League or state university.

Your teenager should know, Kobliner says, that they will “make about the same salary either way – turns out it’s more about the kid than the name of the college.”

As high school graduation gets closer, talk in more depth about paying for college. “The most important question often gets overlooked at first: Can we afford it?” she said. I would add that the question often comes too late – after the college applicant has already received their acceptance letters and expectations are set.

In addition to the how-to videos, another set of videos feature four conversations about college between real parents and their children. In one of them (above), a mother doesn’t tell her child not to go into debt for college. But she does explain the bad choices she herself made and that she regrets she is still paying off her student loans.

Many teenagers don’t want to talk about anything with their parents – period – but the videos provide tips for overcoming teen resistance and starting the critical conversation about the cost of college. …Learn More