Thursday, December 27, 2018

Twenty Key Personal Finance Events of 2018

As 2018 winds down, it is useful to review research, events, and trends that took place and predictions for the future. I recently presented a webinar for the eXtension Military Families Learning Network titled 2018 Personal Finance Year in Review. Below are 20 highlights:

  • Support to Adult Children- A 2018 study found that four of five parents provide some type of support to adult children, twice as much money as they save for retirement.
  • Retirement Confidence- The 2018 Retirement Confidence Survey found that 64% of workers reported that they or a spouse had saved money for retirement; 45% had less than $25,000 saved.
  • The Power of Working Longer- 2018 research found working 3-4 years more increases sustainable retirement income by 24%-33%; for older workers age 50+, it is more powerful than saving more.
  • Retirement Income Illustrations- A 2018 study found that 48% of retirement plan participants increased their contributions after seeing their estimated monthly income (55% for millennials).
  • Financial Health- According to the inaugural U.S. Financial Health Pulse study by the Center for Financial Services Innovation, only 28% of Americans are financially healthy.
  • Household Borrowing- Total U.S. consumer debt reached $13.3 trillion in mid-2018 and is higher than before the 2008 financial crisis.
  • Financial Fragility- The 2018 Federal Reserve SHED study found that 3 in 10 adults have volatile family incomes and 4 in 10 could not cover an unexpected $400 expense without borrowing money.
  • Low Birth Rate- The lowest U.S. birth rate ever was reported in 2018, with financial implications for baby boom generation “wannabe” grandparents and home sellers.
  • Low Unbanked Levels- 2018 saw a record low number of Americans without a bank account; 6.5% of U.S. households were unbanked vs. 8.2% in 2011. About 19% of households are underbanked.
  • Surge in Personal Loans- Personal loans surged as the fastest-growing U.S. consumer-lending category. Over a third (36%) of these loans were originated via financial technology companies.
  • A Rise in Sports Betting- A May 2018 Supreme Court decision allowed sports betting and it has surged in states that allow it.
  • All Time High Car Payments- The average monthly loan payment for a new car hit an all-time high of $523, the average loan amount was $31,453 and the average loan length was 5 years, 9 months.
  • Older Adult Bankruptcies- The rate at which Americans 65+ are filing for bankruptcy has more than tripled since 1991. Filing rates are rising for older Americans and falling for younger people.
  • Rampant Identity Theft- A record 16.7 million Americans were identity theft fraud victims in 2017. For the first time ever, Social Security numbers were compromised more than credit card numbers.
  • Low Unemployment- An unemployment rate of 3.8% in May 2018 was the lowest since 1966 and a sign of a strong economy and a tight labor market. In November 2018, it was 3.7%.
  • Social Security Tipping Point- Program costs exceeded income in 2018 for the first time since 1982, forcing Social Security to dip into its nearly $3 trillion trust fund.
  • Post-TCJA Tax Planning- 2018 is the first year that Americans will file taxes following passage of the Tax Cuts and Jobs Act. There are concerns that some people will have inadequate tax withholding.
  • Rise in State Savings Plans- Almost a dozen states took steps to establish state-sponsored savings plans for workers in small businesses with Roth IRAs funded by employees via payroll deductions.
  • New Medicare Cards- New Medicare cards with unique identifying numbers, instead of Social Security numbers, started to be mailed out in April 2018 in an effort to combat identity theft.
  • Anniversary Milestones- 2018 marked the 25th anniversary of exchange-traded funds (ETFs), the 20th anniversary of Roth IRAs, and the 10th anniversary of the 2008 financial crisis and bitcoins. It was also the 40th anniversary of the establishment of 401(k) retirement savings plans.

Thursday, December 20, 2018

Financial Tips for Newlyweds: Part 2

This post continues last week’s discussion of financial action steps for newlyweds. Below are five tips to consider:

  • Learn About Each Other’s Finances- Exchange tax returns with your spouse from the past 3 to 5 years prior to marriage. This will increase understanding of each other’s finances and assist in future tax planning. Other good sources of information about the financial habits and history of a spouse-to-be are their checkbook register and bank and/or brokerage firm statements.
  • Consider the Timing of the Wedding- Remember that marital status on December 31 determines tax filing status for the entire year. Consider postponing the wedding a few months into the next calendar year if it will save a significant amount on income taxes.
  • Determine Your Tax Filing Status- Consider the married filing separate filing status option if one spouse has high deductions for, say, medical expenses that would be limited by filing jointly. Generally speaking, however, married couples save the most on income taxes by filing a joint tax return.
  • Review Employee Benefit Plans- Compare the costs and benefits of each spouse’s employee health insurance. Sometimes it is cheaper for each spouse to retain their individual employer-provided benefits, at least until family coverage is needed for a newborn child. In other situations, one spouse’s benefit plan is superior to the other and it makes sense to consolidate coverage and name the spouse with inadequate benefits as a covered dependent. Ask your respective human resources departments for assistance, if needed.
  • Invest Holistically- Start thinking of each spouse’s employee retirement plans in the context of a couple’s combined investment portfolio. In other words, instead of duplicating each other’s investment selections, consider investing in different types of securities to diversify investments and reduce the risk of loss. For example, if one spouse owns all domestic stock funds, the other might purchase a global securities fund.

Thursday, December 13, 2018

Financial Tips for Newlyweds: Part 1

Many engagements occur during the holiday season.When a couple decides to gets married, they usually comingle at least some of their personal finances. Some of the biggest challenges a couple will face include joint goal-setting, establishing accounts at financial institutions, deciding how to pay bills and manage money, and filing income taxes as a married couple. Below are five recommendations to consider:

  • Set Joint Financial Goals- Make a list of short- and longer- term needs and wants. For example, one spouse may need a new car within a year and, together, a couple wants to buy a house within three years. Determine the cost of each goal and the amount that needs to be saved each month to achieve it on time. As an initial financial goal, plan to save at least 3 months living expenses for emergencies such as car repairs.
  • Develop a Spending Plan- Prepare a spending plan (a.k.a., budget) that includes savings for financial goals. Review and revise it as needed. A simple spending plan includes monthly net income, fixed expenses, flexible expenses, and occasional expenses that are paid less frequently than monthly (e.g., quarterly insurance premiums).
  • Develop a Cash Management Plan- Decide if and how you want to merge financial accounts (e.g., savings and checking). Some couples prefer one joint account while others prefer two separate accounts or a combination of separate and joint accounts. Factors to consider include convenience, a desire by each spouse for some personal “spending money,” and the minimum balances required by financial institutions to avoid fees.
  • Develop a Payment Plan-Decide how to divide household expenses. If the incomes of two working spouses are fairly equal, bills can be split 50/50. If there is a substantial difference in earnings, bills can be pro-rated. For example, the spouse who earns 70% of household income would pay 70% of the couple’s expenses. The other spouse who earns 30% of total income would pay the remaining 30% of the bills.
  • Come Clean About Credit- Review each other’s credit reports prior to marriage. If a spouse-to-be has a poor credit history, don’t apply for a joint loan (e.g., mortgage) or credit cards. Keep your credit histories separate until negative information drops off the poor credit report, usually in 7 years (10 years for bankruptcy). If one spouse co-signs a loan for the other, he or she becomes legally responsible. Similarly, if financial accounts are merged, assets of the spouse with a good credit history can be seized by creditors.

Friday, December 7, 2018

Research Findings from the AFCPE Symposium

I recently reviewed the proceedings (published papers and abstracts) of the 2018 symposium of the Association for Financial Counseling and Planning Education (AFCPE). Below are five take-away messages that caught my attention:

A study of college students’ money management behaviors found that they lack financial knowledge and tend to over-estimate their knowledge of personal finance.

Another study found evidence that financial knowledge is negatively related to financial stress. Knowledge about inflation and taxes was significantly associated with lower financial stress levels.

A third research study found statistically significant relationships between diet (eating habits), sleep, and physical activity, respectively, with an index of 10 financial management practices.

A fourth symposium workshop discussed differences between male and female finances. For example, the average monthly Social Security benefit for female retirees is 79% of what it is for male retirees.

Another session discussed research that found that indicators of financial knowledge and their application had a significant impact on financial well-being.


What can be learned from these AFCPE Symposium presentations?
Clearly one take-away is that financial knowledge is power. Another is that conscientiousness in one area of life (e.g., personal health habits) might provide useful insights into another (e.g., personal finances). Finally, women face unique financial challenges (e.g., lower average incomes and longer life expectancies) than men and should make financial plans accordingly (e.g., saving as much as possible for retirement and working longer to earn a higher Social Security benefit).

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