Squared Away Blog

As a 20-something working in downtown Chicago in the 1980s, I spent every dime of my disposable income – and then some – on beer and Thai food, vacations, clothes, and parking tickets. Fast forward 30 years, and my niece and nephew in Chicagoland are now graduating college. It’s liberating to leave school for a full-time job and a substantial increase in one’s income after years of penury. It’s also so tempting to squander this money. But young adults no longer have that luxury. The financial demands Millennials will face over their lifetimes are shaping up as far more complex than they were for their baby boomer parents, whose primary worry was buying a house. ……

There’s little agreement on whether personal finance education in the schools is effective, but success with financial education mandates in Georgia, Idaho, and Texas indicates that it is. A new study compared thousands of young adults in these states, which have fairly rigorous mandates, with states lacking personal finance education. This focus on states with very strong mandates departs from prior studies that lumped together numerous states with varying levels of mandates. The researchers also looked at whether behavior actually improved – credit scores and loan delinquencies – rather than simply testing students’ knowledge before and after they took the classes. The three states studied have extensive financial education programs. Curricula in Georgia cover economics, financial institutions, saving, insurance, credit,…

Americans once defined success mainly by whether they owned a house or were better off than their parents. Today, it’s a debt-free college education and a comfortable retirement. U.S. adults feel that their top indicator of financial success is having enough money in the bank to retire (28 percent of adults), followed by sending their kids to college without having to borrow to pay for it (23 percent), according to a telephone survey sponsored by the American Institute of CPAs. Homeownership and upward mobility each came in at a distant 11 percent of the adults, age 18 and up, randomly surveyed by Harris Poll. “No longer are homeownership and upward financial mobility the hallmarks of financial achievement,” said Ernie Almonte, chairman…

The federal minimum wage is $7.25 per hour, up from $1.60 in 1968. Yet it has eroded in terms of what it can buy. Its value has fallen, because, despite more than a four-fold increase in the minimum wage over nearly a half century, it has not kept up with inflation. The 1968 value, when translated into 2014 dollars, was $9.58 per hour, as shown in the chart (left) from the Center on Wage and Employment Dynamics at the University of California, Berkeley. In other words, today’s minimum wage, at $7.25, buys about 25 percent less than it did in 1968. As the federal minimum wage has eroded, Sylvia Allegretto, the Center’s co-director, noted that numerous states and municipalities stepped…

Several new books are pertinent to topics frequently covered by this blog. Three worth noting are about low-income savers, older workers, and small employers with retirement plans that are overdue for an upgrade. Here are brief descriptions: “A Fragile Balance: Emergency Savings and Liquid Resources for Low-Income Consumers:”: For low-wage workers in fast food, retail, and similar jobs, just finding enough money for living expenses is like squeezing blood from a turnip. Research shows that many want to save, and the absence of this backstop only increases their financial fragility. The default is often to resort to high-cost debt, which further confounds their ability to pay the bills, much less weather the next emergency such as a car repair. Finding…

New research finds that the people most likely to benefit from target date funds are also the people inclined to invest their 401(k)s in them – unsophisticated investors. Retirement and financial literacy researchers long ago established the pitfalls of our nation’s do-it-yourself system of retirement saving (i.e., people don’t save at all or don’t save enough, and investing is too complex for most people). Target date funds (TDFs) have become an increasingly popular solution to the investment piece of the problem in the wake of the Pension Protection Act of 2006, which allowed employers to use them as the default investment option in defined contribution savings plans. TDFs place a 401(k) participant’s accumulated savings into a broadly diversified portfolio of…

Here’s a sobering thought: by the time most workers get into their 50s, their earnings are declining. Although older workers don’t necessarily see smaller paychecks, their earnings are effectively shrinking, because they no longer keep up with inflation, according to a study charting the inflation-adjusted, or “real,” earnings of some 5 million U.S. workers over their lifetimes. The first decade in the labor force, between ages 25 to 35, is crucial – that’s where the wage gains are concentrated, the researchers find. Real earnings plateau sometime between 35 and 45, and this plateau occurs earlier than previous research had indicated. By the time most people move into the oldest age group in the sample – 45 to 55 – their…

Great news for older workers considering a career change – those who’ve done it are happier and less stressed. People who attempted a career change sometime after turning 45 were surveyed last year by the American Institute for Economic Research (AIER) in Massachusetts.  Whatever the reason for making a change – voluntary or forced – the majority of those who did so felt their results were successful. These late-career changers need to be put in a larger perspective.  Older workers are much more likely to stay put in a job than are younger people moving up the ladder, and older people also have a tougher time recovering and finding a new full-time job after becoming unemployed. But when older workers…

The job market is improving, but more than half of baby boomers surveyed felt age discrimination “prevented them from working as much as they would like.” Squared Away interviewed Joanna Lahey, associate professor at Texas A&M University’s Bush School of Government and Public Service, who says age discrimination is extremely difficult to “prove.” Many older workers have legitimate complaints about being discriminated against.  But what does the research tell us about how pervasive it is? Lahey: Before I answer that, let me clarify something.  Older people who are working do well compared to younger workers.  On average, they have more money and stability. It’s the older job seekers whose experiences worry policy makers and researchers. The bottom line is w…

A 1983 reform to Social Security is now in full swing for baby boomers: they must wait at least until their 66th birthday to claim their full pension benefits. But is the gradual increase in the program’s so-called full retirement age – it was 65 for prior generations – having any effect on when boomers retire? Why people decide to retire when they do is complicated, and economists have tried for years to understand this.  Americans are working slightly longer than they did in the mid-1990s, with the average retirement age rising from 62 to 64 for men and from 60 to 62 for women (though this trend may be stalling). Myriad possible explanations for retiring later include the declin…

The nursing profession is predominantly women, but it’s the male nurses who earn more – $5,148 more per year on average. “Male RNs out-earned female RNs across settings, specialties, and positions with no narrowing of the pay gap over time,” according to a salary comparison from 1998 through 2013 in the Journal of the American Medical Association. Other research has revealed pay gaps in teaching, another women-dominated profession. Today is Equal Pay Day, and the media is replete with reminders that American women earn 77 cents for every dollar that men earn. Nursing is the single largest profession in the growing health care sector, and the pay gap affects some 2.5 million women employed in a profession established in 19t…

Parents have spoken: paying for college is affecting their retirement planning. Two new surveys indicate that the surge in college costs is impinging on Americans’ retirement finances.  One survey, by the research firm Hearts & Wallets, found that boomer parents who support their adult children are more likely to delay retirement than parents of financially independent offspring.  The second survey, by the mutual fund manager T. Rowe Price, found that half of parents are willing to delay retirement or dip into their retirement savings to fund college. The surveys included young, idealistic parents as well as parents staring down the barrel of the retirement gun, and parents whose children achieved financial independence years ago. Nevertheless, these responses consistently show a…