October 18, 2012
College Educated Take On More Debt
Americans with college degrees are more likely to overuse their credit cards, home equity loans and other debts than are people who didn’t attend college, according to research in the latest International Journal of Consumer Studies.
“I was really expecting the reverse,” Sherman Hanna, a professor of consumer sciences at Ohio State University in Columbus, said about the results of his research, conducted in conjunction with Ewha Womans University in Seoul and the University of Georgia in Athens.
The study also reveals the increasing fragility of Americans’ finances, particularly in the run-up to the 2008 financial crisis when overall debt levels surged amid what Hanna called a “democratization of credit” that made it easier – critics said too easy – to borrow.
The percent of all U.S. households with monthly debt payments exceeding 40 percent of their pretax income rose from 18 percent in 1992 to 27 percent in 2007. (Consumers have slashed their debt during the recent recession.)
Based on education levels, Americans with a bachelor’s or graduate degree had more than a 32 percent likelihood of being heavily in debt. That compared with 24.5 percent for people who graduated from high school and did not attend college, according to the study, which tracked U.S. households from 1992 through 2007. To make their comparison, the researchers controlled for the effect of incomes.
The researchers designated households in their sample as being heavily in debt if their monthly loan payments and other debt obligations exceeded 40 percent of their pretax income. That is a high share of income to devote every month to paying off loans, rather than buying groceries, saving for retirement, or utilities…Learn More
April 5, 2012
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
March 29, 2012
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
February 23, 2012
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
December 6, 2011
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
June 7, 2011
Forced into Retirement? Downsize
Laid off from his job as a software engineer, Ken Wadland did something smart: he downsized.
After losing his job in June 2009, it immediately became obvious to Wadland that he could not afford his large house in the Rhode Island countryside. He sold it and purchased a condominium to reduce his housing costs, which are the largest single expense for most households.
The financial-services industry barrages baby boomers with tips for saving and investing their retirement nest eggs. But little attention is paid to the strategy of downsizing, an effective way for baby boomers to improve their retirement security by cashing in on the large amounts of equity built up in their homes over decades.
“I’d rather not have the expense,” Wadland, who is 60, said in this video.
Ken Wadland from Over Fifty and Out of Work on Vimeo.
Wadland explained how he came around to his decision in the online video series, “Over 50 and Out of Work,” which is featured occasionally in Squared Away.
His most recent job was at a large company, which once awarded him for being an innovator. “My passion is solving puzzles,” said Wadland. …