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
Collectibles purchased online range from Russel Wright dinnerware (shown here) to songs and video. Source: backhomeagainvintage.
Credit cards and malls are so yesterday.
Young adults move easily among an array of online payment and shopping options unimaginable a decade ago: PayPal, Groupon, telephone bill payment, smartphone apps that pay for store purchases, online retailers galore, automatic bank payments, and online gift cards.
Technology is moving fast: Amazon recently released an app called “Flow” that will recognize a product — from a book to a jar of Nutella — and then send the price, user reviews and a “Buy It Now” option to your smartphone.
It’s time to take stock of how easy it has become to overspend and how difficult saving is for young adults weaned on e-transactions.
“When it doesn’t feel like money, people don’t treat it like money,” said Priya Raghubir, a professor at the New York University Stern School of Business, neatly summing up her 2008 paper, “Monopoly Money: The Effect on Payment Coupling and Form on Spending Behavior.”
It’s extremely hard for young adults to change their behavior, “because they aren’t used to any other way of paying,” said Raghubir, 48, who remembers the old paper-transaction days when cash was king and checks were reserved for the big purchases…Learn More
Nearly one in three employees under age 35 has not enrolled in their 401(k) retirement plan, according to almost half of the major corporations surveyed recently by Northern Trust.
It’s “imperative” that young employees save more than they do, said Lee Freitag, senior product manager for defined contribution solutions at Northern Trust, which surveyed Altria Group, Microsoft, Walgreen and other U.S. companies.
Today’s young workers will rely more on 401(k) savings than any previous generation, he said, now that employer-funded pension plans are virtually extinct in corporate America. Yet many are sacrificing their prime savings years. To retire at age 70, for example, a 25-year-old must save only 7 percent of his or her income, earning investment income over 40 years. This compared with a steep 18 percent of income for someone who waits until age 45 to start saving and has fewer years to accrue investment returns.
So, how to reach these young adults when it counts? To them, retirement in their 60s is an abstraction – they do not naturally focus on it. According to preliminary research out of the Mason School of Business at the College of William & Mary, how employers communicate may be the key to boosting savings among recent entrants to the workforce, given their long time horizon until retirement.
“We may need to communicate with younger workers differently than older workers,” Nicole Votolato Montgomery, Lisa Szykman, and Julie Agnew write in their new paper.
Their research indicates that employers can help younger employees define the steps they should take – by making them more concrete. This is a different twist on the psychology of saving found in other psychological research – when college students in one experiment saw computer avatars of their older selves, they wanted to save for their old age. …Learn More
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
Average college loans owed by the class of 2010 surged to $25,250 last year, up 5 percent from class of 2009 balances and up 35 percent from 2004, the Project on Student Debt reported today.
But let’s take a moment to thank Congress for doing something well: helping college students ward off another source of debt troubles, credit cards.
Since the federal Credit Card Act of 2009 restricted card issuers’ once-easy access to students, their credit card balances have dropped to $811, on average, from a record $3,173 in 2009, according to student lender Sallie Mae. Forty percent of college students currently have credit cards, down from 84 percent.
Sallie Mae said the 2009 and 2011 surveys were based on slightly different populations and are difficult to compare. But a downward trend is what the undersecretary of the Massachusetts Office of Consumer Affairs, Barbara Anthony, has also observed when she tours college campuses. Three years ago, a roomful of hands would go up when she asked who had a card. Today, it’s “definitely a minority,” she said.
The drop in card use “was absolutely due to the act,” she said. …Learn More
With more college graduates piling up debts, an increasingly popular program on campus is trying to help them stay out of trouble.
More than 600 colleges are now enrolled in the National Endowment for Financial Education’s (NEFE) online program, so they can offer free assistance to four-year and community college students. CashCourse is a sort of private-label personal finance program: each academic institution puts its logo and school colors on NEFE’s online package of cash- and debt-management tools, tips, and workshops.
The University of California, the University of Texas, Purdue University, and State University of New York are among the schools posting NEFE’s materials to their websites or customizing financial programs to meet their students’ unique needs.
“We want every school to figure out what works for them,” said Ted Beck, NEFE’s chief executive.
Leticia Gradington, program director for Kansas University’s program, said it’s not unusual for students to have $20,000 to $30,000 in college loans and credit card debts.
“You’ve got students every day who are worrying about how they’re going to pay their debt back,” she said. If students can learn just how expensive the debt is before they borrow, “They pay more attention to it.” …Learn More
Every entrant to the workforce should be subjected to the same questions posed to California undergraduates in a new experiment about how well people understand compound interest.
Better to show the math than to explain it. Franny and Zooey just started working. Franny immediately begins depositing $100 per month – $1,200 every year – into her new retirement account, which pays 10 percent interest annually. Zooey doesn’t start saving for 20 years, but he puts in $300 every month — $3,600 annually — and also earns 10 percent interest.
In 40 years, Franny retires with $584,222 in her account – more than double Zooey’s $226,809.
Asked to calculate these future savings on their own, 90 percent of the undergraduates had vastly underestimated the totals in the experiment by Craig McKenzie at University of California, San Diego and Michael Liersch at New York University. Yet, this mathematical calculation is central to the financial well-being of most Americans. In 2009, more than half of all households were at risk of not having sufficient assets to retire, according to Boston College’s Center for Retirement Research, which hosts this blog. …Learn More