Squared Away Blog

Impulse purchases – new spring clothes or an expensive dinner out – can create a rush. But a few minutes of pleasure can blow a hole in the budget for a month. If it’s chronic, it can eat into savings for a down payment or retirement. The reason for these rash decisions is obvious: see it, want it. But for people who want to better understand – and prevent – their impulse buys and remain on budget, FinCapDev, which is hosting an online competition for a financial literacy app, recently posted a reading list of three research papers that explain why we can’t resist buying stuff. One study has confirmed that store browsers actually are vulnerable to impulsive purchases, becaus…

As I sat in an orthopedist’s office last week watching the doctor poke and prod my mother’s legs – an irritated nerve may be causing her severe pain – this thought struck me: long-term care is often an unspoken topic but one of enormous magnitude. I’ve always taken for granted that my active mother, who plays a killer game of bridge, wouldn’t need much medical attention for another 15 years. I have evidence of this, I’d convince myself: her mother lived to age 92 and some uncles lived even longer. The pain makes it difficult for my mother to walk her dog, though she gamely hobbles through her day and even insists on league bowling on Wednesdays. It’s so muc…

Over the past 25 years, the difference in wealth held by white and black households in the United States has nearly tripled, to $236,500. In December, Squared Away wrote about the difficulty that black families have in trying to accumulate wealth so they can pass it on to their children. New research out of Brandeis University’s Institute on Assets and Social Policy now finds that the gap between the median net worth for white and black households has widened to a chasm, as blacks have fallen farther behind. The study also quantified the reasons for the widening gap and found that the difficulty of building up housing equity is the largest factor. A house is usually the single largest asset…

Repeated loud warnings by financial advisers fail to reverse the human tendency to panic when the market plunges and to rush in after it’s gone up. Withdrawals from 401(k)s and IRAs surged between 2001 and 2003 after high-tech stocks declined, but the money went back in in 2005 through 2007 after the S&P500 index had soared nearly 27 percent in 2003 and 9 percent in 2004, according to new research by Thomas Bridges, a graduate student in economics, and Professor Frank Stafford, for the University of Michigan Retirement Research Center. “They think I have $500,000, and if I don’t take it out now it’s going to be $50,000. It’s a panic mentality,” said Stafford, who was surprised by what they found. Withdrawals increased…

A few more jobs reports like February’s might put a dent in the nation’s still-high unemployment rate. The Bureau of Labor Statistics said U.S. employment surged by 236,000 last month, nudging the jobless rate down to 7.7 percent. But a summary of unemployment rates for various age groups, recently published online by the Urban Institute, showed variations in the rate, by age. Rates have been consistently lower over the past decade for older workers than for those in their 20s, 30s, and 40s – even during and after the Great Recession. In a still-sluggish economy, one might wonder: are older workers who remain on the job somehow depriving younger adults of work? There is “absolutely no evidence of such ‘crowding…

The American psyche gets a lot of credit for fueling the boom in U.S. home prices, which ended in 2006. As houses increased in value, homeowners felt richer, and they spent more. Similarly, falling house prices led to declines in consumer spending as households found themselves poorer and less able to access credit, according to a new paper, “Wealth Effects Revisited: 1975-2012,” by economists Karl Case, the late John Quigley and Robert Shiller. In this interview, Case explains this “wealth effect.” Q: Why were our spending decisions influenced by our psychology during the housing boom? Case: The increase in house prices was like magic. They went from the 1950s until 2006 without ever falling nationally. The numbers are astonishing. If…

More than half of baby boomers and Generation Xers do not realize how much they are likely to pay out of their own pockets for medical bills after they retire. Many “were seriously underestimating the amount of savings they would need to accumulate in order to cover health in retirement,” according to what may be the first comprehensive survey and analysis of what Americans expect to pay – and how far off their estimates are. The good news is that Medicare pays roughly 60 percent of retirees’ total costs. The bad news is that they have to somehow cover the other 40 percent, which is particularly expensive for those who live longer (read women). If this new study carries on…

The Ontario Teachers’ Pension Plan has produced a terrific video that spells out how pension systems got into the trouble they’re in and proposes the outlines of what’s required to repair them. The strength of this video is its broad sweep and perspective. It is worth watching for anyone interested in their children’s and grandchildren’s future financial security – as well as their own. “Pension Plan Evolution” explains that U.S., Canadian, and other western retirement systems were built on the faulty assumptions that the future would keep producing enough younger workers to support retirees, 8 percent annual returns on investments, and economic growth that matched what the baby boom generation enjoyed in its prime. Watch the entire video below. But…

At tax time, many Americans think, often fleetingly, about spending less and socking away more for retirement. Until April 15, the IRS permits people who do not have a pension plan at work to deduct up to $6,000 for money placed in an IRA; taxpayers who do have an employer pension can also receive the IRA deduction if their earnings fall under the IRS’ income limits. The tough question that trips people up is: How much will I need? The easy way to think about this is in terms of the income necessary to maintain your current standard of living after the paychecks stop coming in.  Click here for a tool that estimates both how much you’ll need and how…