Squared Away Blog

A new report by the FINRA Investor Education Foundation finds “a financially fragile renter population relative to homeowners.” It’s hardly surprising that apartment dwellers who rent are worse off financially than homeowners. It takes money to buy a house.  But things got markedly worse for renters after the Great Recession. Millions of homeowners, foreclosed on by their lenders, were thrown back into the market for apartments, driving up rental rates and squeezing all renters. A new FINRA Foundation report, “American Renters and Financial Fragility,” dramatizes the growing rift between the nation’s haves and have-nots through a comparison of owners and renters. Click on “Learn More” below to see a FINRA Foundation chart contrasting the personal financial situation for renters versus…

Recent immigrants – whether from Mexico, Africa or China – often form groups that regularly contribute to a pool of money. Group members then take turns pulling out $500 or $1,000 in accumulated cash. These savings groups are one aspect of a pervasive underground money culture bustling beneath the surface in U.S. communities of immigrants and other low-income workers. Savings groups are one of four types of “informal” financial arrangements identified in a new report, “An Invisible Finance Sector: How Households Use Financial Tools of Their Own Making.” These arrangements create a strong social commitment to saving typically absent in the formal U.S. banking system. The four arrangements discussed in the report are: Savings groups, also known as lending circles,…

The federal government has added two Spanish-language guides to its multilingual library printed in languages ranging from French to Tagalog, the language of the Philippines. The Spanish guides (previously available in English) – “Money Smart para Adultos Mayores” (“Money Smart for Older Adults”) and “Cómo Administrar el Dinero de Otras Personas” (“Managing Someone Else’s Money”) – teach seniors and their caregivers how to spot scams and frauds and help caregivers to understand their financial duties. They are all free of charge and published by the Office for Older Americans in the Consumer Financial Protection Bureau (CFPB). Other topics also appear in the CFPB’s online table of contents, which permits consumers and financial planners to search by language or by subjects…

This is the sixth video featured in a series of seven that are worth watching. The new series, “How to Win the Loser’s Game,” takes viewers on an in-depth tour of the financial industry landscape while managing not to be dull.  It includes a history of academic research in the finance field and examines the issue of paying high fees for active investment managers. The big message in the above video has also been covered on this blog: it’s virtually impossible for active managers to consistently outperform the overall market’s return. The solution: buy passive mutual funds and diversify. The evidence presented in the videos, sometimes by academic giants in the field, is compelling. Click here to watch the remaining…

Americans who are 62 or older had an estimated $3.6 trillion in total equity locked up in their homes in the first quarter of 2014, according to the National Reverse Mortgage Lenders Association. A new primer suggests they should start thinking seriously about using it to generate some extra retirement income. The primer, published by the Center for Retirement Research at Boston College, which sponsors this blog, discusses two ways retirees can use home equity to generate income: by downsizing into a less expensive house or condominium or by taking out a reverse mortgage. Click here to read the booklet online and learn how these strategies work and how much money each can provide.  Their pros and cons are detailed…

Plastic or paper?  Americans have spoken. In 2013, they made $4.1 trillion in purchases on their credit and debit cards, according to the Nilson Report – and that figure keeps marching upward. Some researchers view this as a dangerous trend.  Plastic cards, they contend, put distance between a man and his bank account. Without the tactile sensation of handing over one’s hard-earned cash, it’s easy – too easy – to spend money and harder to save. New research out of The Netherlands has an entirely different take on the cash versus plastic debate. The study, based on a detailed Internet survey of nearly 1,500 Dutch people about their financial habits, shows that they view the debit card “as the better…

For a growing share of older Americans, housing expenses have become an increasingly large financial burden. One in three Americans over age 50 were carrying a severe or moderate housing cost burden in 2012, up from one in four in 2000, according to a new study by Harvard’s Joint Center for Housing Studies and AARP. The Center defined a severe burden as housing costs that consume more than half of household income; a moderate housing burden takes between 30 percent and 50 percent of income. The Center’s report, “Housing America’s Older Adults – Meeting the Needs of An Aging Population,” warns that the nation is unprepared for both the financial and non-financial housing challenges that will accompany the coming explosion in…

Is retirement good for one’s mental health? The evidence is all over the place. One study concludes that retiring sooner means a higher incidence of dementia.  Other studies show it benefits physical health, which can affect one’s state of mind.  Research from different countries reach different conclusions about their own retirees’ sense of well-being: the English and Finnish find that retiring improves it, while Korean and U.S. researchers don’t. Seeking some universal truths about retirement in the Western world, a new study of the United States and 11 European countries finds that it improves subjective well-being, measured both in terms of satisfaction with one’s life and the incidence of depression.  The study is based on two comparable sets of surveys…

This blog has a single writer posting just two articles a week. So it’s impossible to keep up with all the news that crosses the transom. But perhaps because the work world is gearing back up this fall, there have been a lot of interesting stories lately about financial behavior.  Here are three worth noting: Fatherhood adds to paychecks – motherhood, not so much. A new study estimates that women actually face about a 7 percent “wage penalty” for each child. So, having two children reduces a woman’s hourly wages by 14 percent, according to a new study out of the University of Massachusetts at Amherst. In contrast, annual earnings for fathers are about 8 percent higher than similarly situated…

Policymakers often worry that increasing government pension benefits won’t necessarily help retirees, if the reforms cause workers to change their behavior in ways that counteract them.  For example, some workers might save less if they know pension benefits are rising, offsetting the income boost they’ll get from a larger pension. However, researchers examining Canada’s pension reform over five decades confirm that they have materially improved the financial well-being of retirees there. To reach this conclusion, Kevin Milligan of the Vancouver School of Economics and David Wise of Harvard University tracked the financial status of older Canadians from 1960 through 2010.  They analyzed some 100,000 families between 55 and 80 years old using Canada’s Survey of Consumer Finances, the Survey of…

A September 2012 article on page one of The New York Times reported “disturbingly sharp drops” in life expectancy between 1990 and 2008 for Americans who do not complete high school – five years less for white women and three years less for white men. This flatly contradicted past studies documenting rising longevity throughout the developed world. Much was also at stake in this dramatic new finding for U.S. retirement experts concerned about the growing financial pressures on retirees from what they’d assumed were virtually uninterrupted gains in longevity Everyone wants to live longer, but it’s expensive. So who’s right? In reaction to the 2012 study, a new group of researchers, funded by the U.S. Social Security Administration, took another…

How much must 30-somethings save in their 401(k)s to prevent a decline in their living standard after they retire? No two people are alike, but the Center for Retirement Research estimates the typical 35 year old who hopes to retire at 65 should sock away 15 percent of his earnings, starting now.  Prefer to retire at 62?  Hike that to 24 percent.  To get the percent deducted from one’s paycheck down into the single digits, young adults should start saving in their mid-20s and think about retiring at 67. These retirement savings rates are taken from the table below showing the Center’s recent estimates of how much workers of various ages should save to achieve a comfortable retirement; they represent…