Squared Away Blog

In this video, an expert in financial behavior explains the common errors in reasoning, whether people are thinking about love or money. Thoughts like: • This time is different. • I can change things. • Wishing on a star. • Being afraid of loss…

The Great Recession is receding into the past, but many people may still be feeling the strain in their personal finances. Post-recession, “the fact remains that Americans are fairly unsatisfied about where they are financially,” Gerri Walsh, president of the FINRA Investor Education Foundation, said in a recent video in which she discussed her organization’s 2012 National Financial Capability Study. The study, the nation’s most comprehensive survey of financial literacy and well-being, reported some areas of progress for average workers. Compared with 2009 – the depths of recession – more people felt they were better able to make ends meet in 2012. But a substantial minority of Americans were still living paycheck to paycheck. A previous blog post provides other…

Jessica Smith, mother of four, was never much of a saver.  But a credit union that dispenses prizes has changed all that. She now saves $150 every month out of her pay and bonus as a restaurant buffet manager.  Each $25 deposited into her account gives her one more entry in a monthly drawing for cash prizes at the Communicating Arts Credit Union in Detroit. Jessica Smith and her winnings. By coincidence, she won three times last fall – a total of $100 in prizes. But in contrast to throwing money away on a lottery ticket with bad odds, she earns a little interest on her credit union account. These so-called prize-linked accounts aren’t a new concept: one of t…

The IRS effectively gives money away to low-income Americans who save for retirement. Workers meeting the agency’s income requirements can receive a Saver’s Tax Credit equal to as much as half of their total deposits into a 401(k) or IRA. The lower one’s income, the bigger the credit. The program, which was made permanent in 2006, gives a nice boost to the nation’s lowest-paid workers, who are also most vulnerable in retirement. And not taking advantage of the credit, said Jim Blankenship, a financial planner in New Berlin, Illinois, “is a lot like giving up an employer match for a 401(k).” Low-income workers do just that, a previous study found: 40 percent decline to participate when their employer offers a…

In this video clip from “Shameless,” young adults may relate to Fiona’s reaction to “the 401(k) talk” by a manager who pops into Fiona’s cubicle. This popular television dramedy, “Shameless,” is about the dysfunctional Gallagher family of Chicago, and oldest daughter Fiona (played by Emmy Rossum) does what she can to keep things together.  But how to cope with the 500-page 401(k) binder her manager drops on her desk with a thud? It’s been rare that 401(k)s are mentioned on television.  So, why have retirement savings accounts entered our popular culture?…

There’s a growing awareness of the chasm between average working Americans and those at the top of the earnings scale. What isn’t widely recognized is that this broad economic trend is spilling over into retirement incomes, which depend on how much people earn and save while they’re still working. “The increasing wage inequality we see during the working years plays out over the life course and will result in more unequal incomes at older ages,” said Richard Johnson, an economist with the Urban Institute in Washington. Johnson recently compared the incomes of today’s retirees with his income projections for the youngest members of Generation X who will enter retirement in about 30 years.  He found that the imbalance between thos…

Older Americans who are in debt are choosing to delay their retirement, researchers conclude in a new working paper. In earlier findings released last summer, the researchers, Barbara Butrica and Nadia Karamcheva of the Urban Institute, documented the growing prevalence of borrowing since the late 1990s among adults ages 62 through 69. Median debt levels among those who owe also surged from $19,000 to $32,100, adjusted for inflation – and debts as a share of their assets increased. Now comes the rest of the story. When the researchers controlled for health, financial assets, home values, and other forms of wealth, as well as spouses’ earnings and other factors that play into decisions about retiring, they found that individuals with debt,…

Every day, some 10,000 Americans are turning 65, and every day, more of them start thinking about their long-term care. For help, try the U.S. Department of Health and Human Services’ recently redesigned website, Longtermcare.gov. It’s very easy to navigate and is packed with reliable information to help visitors: Search for specific types of services in your area, by zip code. Learn whether your home and location are compatible with aging in place. Analyze long-term care costs, by type of service and stat…

Penny DeFraties, a teacher, shared her reaction to a 2012 article that appeared on this blog: The day I hit my minimum retirement age, I’m gone. I look forward to traveling, gardening, spending time with my grandkids, and volunteering at church, the American Red Cross and USO. My first husband died of a heart attack at 49-years-old, and my current husband lost his first wife to MS at 50-years-old. The notion that life is short is a valid reason to retire – to travel or enjoy the grandchildren before it’s too late. And the academic literature clearly shows that the age at which people exit the labor force is related to how long they expect to live. Building on this…

Confidence can be dangerous. It has led investors into fraudulent deals and businessmen into over-borrowing. But new research finds one circumstance in which confidence may be beneficial: retirement planning. Saving and investing can be so overwhelming that workers, judging by the low balances in most 401(k)s, often avoid it. So Andrew Parker, a behavioral scientist in Pittsburgh for the non-profit RAND Corporation, wanted to get at the psychological factors motivating those who do dive in and plan for their future. Parker and fellow researchers concluded that individuals’ tendency to engage in retirement planning and their self-confidence – how much they think they know – are “significantly and positively correlated with each other.” This was true even after their study accounted…

A new study out of Boston College finds that e-shopping for products while grasping an iPad increases the feeling of ownership of that product – and may make you more likely to buy it. The findings expand on a financial behavior issue explored in a popular Squared Away blog post about how the Internet has made it much easier to shop – and spend money. The new research distinguishes among the various technologies available to online shoppers and finds that the urge to buy may be even stronger when holding a touch screen device than when using a laptop or desktop computer. The way this works is that the tactile experience of holding a product – whether taking it off…

Vanguard Group Inc. founder John Bogle’s views about investing, not surprisingly, promote the indexed mutual funds that Vanguard offers.  But his views have solid support in the academic literature. Here’s our translation of his five simple rules for investment success – sound advice for readers who want to work on their 401(k) portfolios: Remember reversion to the mean. If a company’s stock or the overall market has had unusually strong performance, it’s unlikely to continue at that pace. Forget the needle and buy the haystack. Invest in broadly diversified funds, such as index funds that track the market – not in individual company stocks or the money managers who try to find the best ones. ……