Women Assume More Financial Responsibility, but Lack Confidence

Posted on August 24, 2012 by ajkeown

To say the least, the world of personal finance is constantly changing.  There was a time when men largely assumed the responsibilities of personal finance – but today, the financial responsibilities that women take on continue to grow.  Unfortunately, their financial knowledge is not keeping up.  Moreover, as we saw in Chapter 1 of Personal Finance, Turning Money into Wealth, women face unique problems when it comes to achieving financial security. In general, women earn less money, are less likely to have pensions, qualify for less income from Social Security because they generally earn less over their lifetime, and they live longer than men. As a result, planning for their financial independence, in particular during their retirement years, is more difficult for women than it is for men.

Moreover, as reported in the USA Today article, “Women’s financial power grows faster than savvy,” they often lack confidence and tend to rate behind men in understanding financial products and their perceived ability to make financial decisions.  In fact, according to the 2012 Hearts & Wallets survey, women are 42% more likely than men to be concerned about having enough money for retirement; 49% say they are “very inexperienced” with investing vs. 34% of men; and 42% say they are “very uncomfortable” taking on investment risk compared with 28% of men.

Discussion Questions

  1. Take a look at the infographics at the top of the USA Today article “Women’s financial power grows faster than savvy.”  Clicking on the three topics in the upper right hand corner, what fact did you find most unexpected and why?  Be prepared to discuss this in class.
  2. Talk to your parents and grandparents, do you feel that this article accurately portrays how they relate to financial planning?  Be prepared to give examples and discuss these examples in class.
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Mortgage Lengths – the Surprising Popularity of the 15-Year Mortgage

Posted on August 2, 2012 by ajkeown

For most people, their home mortgage amounts to the most money they will ever borrow.  In Chapter 8 of Personal Finance, Turning Money into Wealth we look at “the mortgage decision” and lay out the steps you need to take to help you determine what you can afford to pay for your home.  There we take a look at several measures that help you gauge your ability to pay.

Remember Principle 2: “Nothing Happens Without a Plan” – you know we are talking about a financial plan and taking on a mortgage isn’t something to do outside your financial plan.  While you may qualify for a large mortgage, will that mortgage prevent you from achieving your other financial goals? Have you ever heard anyone say “…you don’t want to be house poor!”?  Go into a mortgage uninformed or ill-informed and it might put such a strain on your monthly budget that you can no longer maintain the lifestyle you want.  Before taking on that mortgage, or any other debt for that matter, make sure it fits in with your other financial goals.  And, more importantly, just because a bank is willing to lend you a large sum of money doesn’t mean you should jump at it.  Only you can decide just how much you’re interested in borrowing. Look at your own financial situation, monthly budget, goals, and lifestyle, and decide for yourself how much you want to take on.

Today, mortgage rates are at historically low levels, and if you’re applying for a home mortgage one question you’ll have to answer is whether you would like a 15- or 30-year mortgage.  The advantage of the 15-year mortgage is that it comes with a lower interest rate.  The disadvantage of the 15-year mortgage is that the monthly payments are higher – that’s because you’re paying off more of the principle each month.  According to the Wall Street Journal Article “Wanted: A 15-Year Home Loan,” the average 30-year mortgage rate is 3.53% while the average 15-year rate is 2.83%.

Class Discussion Questions:

  1. Go to the BankRate.com “Mortgage Calculator – 15-year or 30-year mortgage” and determine the monthly payment on a 15- and 30-year $200,000 mortgage at the rates mentioned in the Wall Street Journal Article “Wanted: A 15-Year Home Loan.” How much interest would you pay in the first 5 years, and how much interest would you pay over the life of the mortgage?  Which mortgage would you go for?  Why?  Be prepared to hand this in or discuss it in class.
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Personal Finance in the News – A Depressing Look at the Job Market for New Grads

Posted on July 18, 2012 by ajkeown

As you saw in Table 1.2 in Chapter 1 of Personal Finance, Turning Money into Wealth, your college major goes a long way toward determining your salary, but perhaps even more important, not only does it help determine your salary, it also plays a major role in determining whether you even get a job.  Some majors are simply in more demand than others.  On top of that, the recent economic downturn has made things even tougher for the 1.8 million college grads this year – and this has been the case since 2006 when the economy began to slow down.  Since 2006, according to a survey conducted by the Center For Workforce Development at Rutgers University titled “Chasing the American Dream: Recent College Graduates and the Great Recession,”  only half of those graduating from college presently have a full-time employment.

The report is a result of interviews conduced with 444 graduates of four-year colleges and universities from the classes of 2006 through 2011.  Some of their findings deal with the difficulties of finding full-time employment in their “chosen field” with just 39% reporting the job being closely related to their field of study  The median salary for all  graduates was $28,000. Table 2 shows the variation seen between groups. Those who graduated during the recession-era labor market (2009 to 2011) earned $3,000 less on average in their first job than those who graduated before the recession began. Their median salaries amount to $27,000 and $30,000, respectively. An important finding was that students who completed an internship while in college earned nearly 15% more on average—$30,000 versus $26,000—than those who did not undertake an internship. Similarly, graduates who found a job related to the field in which they got their degree benefited by the same amount.

While this survey was not uplifting, it did provide some direction for those still in college – particularly with respect to the selection of their major and the importance of an internship.

Discussion questions:

  1. Take a look at the Rutgers report “Chasing the American Dream: Recent College Graduates and the Great Recession” – what skills increased as a result of taking an internship? (Hint: look at Table 5.)
  2. Do you think the results presented Figures 16 and 17 will influence your choice of major?  Why or why not?  Be prepared to discuss this in class.
  3. What is the one fact that surprised you the most about the results?  Be prepared to discuss this in class.
Posted in Ch. 1, Financial Planning Process, Ch.18, Financial Life Events, Personal Finance In The News | Tagged , , , , , , , , , , , , | Leave a comment

Personal Finance In the News: Affordable Care Act Upheld

Posted on June 29, 2012 by ajkeown

Chapter 9 of the 6th edition of Personal Finance, Turning Money into Wealth, discussed the fact that more than two dozen states had joined in a lawsuit stating that the healthcare law was unconstitutional.  On June 28, 2012 the Supreme Court upheld the healthcare law.  The Key Features of the Law are provided on the White House website along with an interactive timeline on What’s Changing and When.

While this new law was initially enacted into law in March 2010, implementation of the different provisions of the law are spread out through 2018.

The different measures in the law can be classified as:

▪       Providing New Consumer Protections

▪       Improving Quality and Lowering Costs

▪       Increasing Access to Affordable Care

▪       Holding Insurance Companies Accountable

However, even though the Affordable Care Act enacts major changes in health care, your interaction with the U.S. medical system will remain more or less the same — you’ll pay a private insurance company, they’ll reimburse your doctors for care.  In addition, while there was much talk of a public health insurance option; there isn’t one, instead, you’ll still deal with one of many insurance companies. In effect, this bill tinkers with the way the current system works, rather than scrapping it and replacing it with a new one.

Still, it does some important things that may affect you, and the Smart Money article, “How the Health Ruling Impacts You,” takes a close look at how this how this law and the high court’s decision impacts five key groups, and what might have happened if the decision had gone the other way. These key groups include:

  • Those with pre-existing conditions
  • Young adults under 26
  • Those who buy their own insurance
  • People who get insurance through work
  • Baby boomers

One thing for certain is that as a result of this law, more Americans will have health insurance.

Discussion questions:

  1. Why do you think the government decide to reform health care?
  2. Identify some of the provisions aimed at lowering costs.
  3. How are young adults under 26 impacted by the ruling, and what might have happened if the law was not upheld?
  4. Take a look at the Wall Street Journal article “Americans react to historic health care decision,” are you glad the Affordable Care Act was passed? Why or why not?
Posted in Ch. 9, Life and Health Insurance, Personal Finance In The News | Tagged , , , , , , | Leave a comment

Class Discussion and Assignment: What We Spend Our Money On

Posted on May 1, 2012 by ajkeown

Teaching Tip:  The Planet Money article, “What America Buys” is fascinating, and the side-by-side graph showing the spending differences between 1949 and 2012 are extremely interesting.  If you can project these onto the board in class, it’s a great place to start off a class discussion.  The Atlantic article “Prices Are People: A Short History of Working and Spending Money” also has excellent graphics dealing with the changes in types of employment since 1939 and how spending has changed since 1947.

Where does all our money go? That might seem like an easy question, but it turns out that the answer is: it depends.  And what it depends upon is how much you earn.  As you might expect, the more you earn, the more you spend on such things as education and entertainment.

As we learned in Chapter 2 of Personal Finance Turning Money Into Wealth when we discussed Expenditures: Where Your Money Goes, we discussed the importance of controling your expenditures.  After all, as you know from Principle 2, which was introduced in Chapter 1, Nothing Happens Without a Plan – and understanding where your money goes is the first step in putting together a plan.

As we mentioned, what you spend your money on depends upon your income level – it also changes over time, and that change over time can be dramatic.  A recent Planet Money article, “What America Buys” takes a look at not only what Americans spend their money on, but how those spending patterns have changed since 1949. Two of the biggest changes have come in the areas of food and housing, with a big decline in how much is spent on food, offset by a big increase in spending on housing.

Discussion Questions:

  1. Take a look at the “What America Buys,” what surprised you the most about these changes in spending between 1949 and today?  Be prepared to share your thoughts with your class.
  2. Take a look at the article “Prices Are People: A Short History of Working and Spending Money” in The Atlantic.  The chart at the end of the article looks at How Spending Has Changed.  Are you surprised by any of these changes?  Which ones and why?  Be prepared to discuss in class.
Posted in Ch. 2, Measuring Financial Health and Making a Plan, Ch. 8, Home and Auto, Uncategorized | Tagged , , , , , , | Leave a comment

Discussion Topic: Who Pays Taxes in America?

Posted on April 26, 2012 by ajkeown

Teaching Tip: This discussion can be developed based upon an out of class assignment (your students prepare to answer the discussion questions before class), or if you have access to the internet in class and can project the NPR Planet Money Blog, “What America Pays in Taxes” on a screen so that the entire class can see the graphs, it works very well as an in class presentation and discussion.

In the near future there’s a good chance that your personal tax rates will change quite a bit – and exactly what happens depends upon who wins the elections in the fall. We all need to pay close attention to this topic because as we know from Principle 4: Taxes Affect Personal Finance Decisions. Planet Money recently took a look at “What America Pays in Taxes” – looking at how much of the different types of taxes (income versus payroll versus estate versus corporate) are paid along with what the average federal rate is for people with different income levels and how much they actually pay on average.

Because taxes have become a hot political topic, there have been a number of articles recently pointing out who really pays what – because until you understand that, you can’t really form an opinion on how taxes should be changed. Some of these recent articles include:

Taxes—Who Really Is Paying Up

Why the Rich Pay 40% of Taxes

Why Some Tax Units Pay No Income Tax

Why do half of all Americans pay no federal income taxes?

Discussion questions:

1. What is your opinion on tax reform? Should taxes be raised on the highest income earners? Why is it so hard for Congress to agree on tax reform. Be prepared to discuss your opinion with the class.

2. Write a one page paper on what changes you would recommend in terms of taxes.  Be prepared to discuss this in class.

Posted in Ch. 4, Tax Planning | Tagged , , , , , | Leave a comment

Heads Up to Students – An e-mail to Your Students: Dealing with Student Debt

Posted on April 23, 2012 by ajkeown

If you’ve got student loans and you’re like most students, you try not to think about it.  But at some point you’re going to have to deal with them – and while that’s not going to be pleasant, there are ways to make it easier.

The consequences of student debt go well beyond just writing a monthly check.  A recent article in the Wall Street Journal titled “To Pay Off Loans, Grads Put Off Marriage, Children” took a look at the impact of taking on too much in the way of student loans.  Some of the possible consequences of too much in the way of student loans included:

  • Delays in buying a car or purchasing a home
  • Postponement of marriage and childbirth for financial reasons
  • Parents feel pressure to take out loans or otherwise help with payments
  • Risk for parents who co-sign loans of losing homes, cars and other assets
  • And there are more….

While we look at this in Chapter 6 of Personal Finance, Turning Money into Wealth we look at student loans, and then in Chapter 7 we take a look at all debt in the section “Tying Things Together: Debt and the Real World,” given its significance for many students, it’s not a bad idea to take another look.

A recent Wall Street Journal article, “The Student-Debt Playbook,” gives a number of ideas to help you work through your student debt.  It presents a number of ideas on how to reduce, rework, and even get rid of your student loans – all things you definitely want to do.

Posted in Ch. 6, Credit Cards, Ch. 7, Consumer Loans | Tagged , , , | Leave a comment

Class Discussion: The Downside of Student Loans

Posted on April 20, 2012 by ajkeown

Teaching tip: There is a very good, short, three and a half minute video with the author of the article that can be played in class to begin a healthy class discussion.  It works well in particular is you have your students read the article first.

A recent article in the Wall Street Journal titled “To Pay Off Loans, Grads Put Off Marriage, Children” reported on the potential consequences of taking on too much in the way of student loans.  In Chapter 6 of Personal Finance, Turning Money into Wealth we look at student loans, and then in Chapter 7 we take a look at all debt in the section “Tying Things Together: Debt and the Real World.”

If you’re a typical college student, as you enter the real world you’re going to take with you a college education, some hope and potential, and lots of debt.  And that includes, on average, 4.6 credit cards and an outstanding balance on those cards of $3,173.  In addition, about half of all graduating college students have loans, and those loans average almost $28,000.

According to the Wall Street Journal article, the consequences of taking out too much in the way of student loans includes delays in buying cars and homes, postponement of marriage, risks for parents who co-sign, difficulties in renting homes, and more.  The bottom line is that taking out a student loan is a significant personal finance event, and one that you should truly understand beforehand.

Discussion question:

1.  Have you taken out college loans?  Did you receive any counseling before taking out your loans? How do you think those loans are going to impact you in the future and what would you do differently if you had it all to do over again?  Be prepared to discuss your response in class.

Posted in Ch. 6, Credit Cards, Ch. 7, Consumer Loans | Tagged , , , , | Leave a comment

Class Discussion and Assignment: 100 Years of Spending

Posted on April 12, 2012 by ajkeown

100 years can bring about a lot of change.  Let’s look a a couple of these changes:

  • In 1901, the average family size was 4.9 people, by 2002-03 it was down to 2.5.
  • In 1901 women made up one quarter of the New York City labor force, by 2000 it was over 50 percent.
  • In 1901, the average U.S. family earned $750, by 2002-03 it was up to $50,302.
  • But, from what you learned in Chapter 3 of Personal Finance, Turning Money Into Wealth, the Time Value of Money chapter, you can’t compare money in two different time periods.  So let’s adjust for inflation.  As we mentioned, the average family income in 1901 was $750, and in 2002-03, the average family income expressed in 1901 dollars was $2,282, or about three times as much.

How we spend our money is something we spend a lot of time on in Personal Finance, Turning Money into Wealth.  In fact, not only do we look at what people spend their money on in Chapter 2, but we also look at how they spend their money in a section called “Smart Buying” in Chapter 8.  In fact, “Principle 6: Waste Not, Want Not – Smart Spending Matters” looks directly at making sure you don’t waste your money.  This is certainly an important topic to most of us!

There are a lot of different ways we can look at all the change that has taken place in the last 100 years.  Set your focus on how many of these changes reflect changes in the typical American’s personal finance – how much Americans spend, and what Americans spend their money on.  What was a luxury 100 years ago, may be viewed as a necessity today – think running water, indoor toilets and a car! The Atlantic recently looked at changes in spending, using the information from the Bureau of Labor Statistics, “100 Years of U.S. Consumer Spending: Data for the Nation, New York City, and Boston” to draw data from.  The Atlantic article, “How America Spends Money: 100 Years in the Life of the Family Budget” does a great job at changes that have taken place over the past 100 years – it’s fun to look at and think about – wonder what changes will take place in the next 100 years?

Discussion Questions:

  1. Take a look at the article “How America Spends Money: 100 Years in the Life of the Family Budget” does a great job of presenting the changes in an easy to understand manner.  What changes surprised you the most?  Why do you think this change (the one that surprised you) took place?  Either write a short paper on this or be prepared to discuss it in class.
  2. Think of stories from grandparents, parents, even your own childhood.  How have things changed with each generation?  What changes seem significant just in your lifetime?  Can you make any predictions about changes that will have an impact on how you will be spending your money?
Posted in Ch. 8, Home and Auto | Tagged , , , , , , | Leave a comment

Class Assignment and Discussion: The Money-Death Problem

Posted on April 9, 2012 by ajkeown

The New Yorker has always been famous for it cartoons, and one of the best is a 2003 cartoon by Barbara Smaller that shows a husband talking to his wife, saying, “If we take a late retirement and an early death, we’ll just squeak by.” 

As we learned in Chapter 16 of Personal Finance Turning Money Into Wealth retirement planning is one of the most important personal finance tasks you have.  Right now you are probably thinking that you’re too young or not wealthy enough to worry about retirement.  Think again. Regardless of your age, you need to start planning for retirement now.   Principle 2 reminds us that Nothing Happens Without a Plan and the way to do this is to focus on retirement as specific financial goal.  As you learned in Chapters 1 and 2, you’re going to have a lot of financial goals in your life. Retirement, though, is a biggie. After all, how well you do in achieving your retirement goal is probably going to determine how much you enjoy the last 20 or more years of your life.

It’s hard to think about retiring when you’re young. For most people, today looms larger than tomorrow. That car loan or mortgage you’re trying to pay off this year will no doubt seem far more important than your financial situation 30 to 40 years from now. But just think how worried you’ll be when you’re 65 and you don’t have a dime to retire on.

Keep in mind that according to the Transamerica Center for Retirement Studies 2011 Survey, the biggest single financial worry for American workers is the fear that they will run out of money during retirement.  Reaching your retirement goal is even more difficult as a result of the fact that interest rates are at near 50-year lows; retirees today are less likely to have pensions and those pensions are often smaller than retirees had in the past; and retirees are now living longer – in effect, many soon-to-be-retirees may spend more years retired than they spent working.  This can be scary stuff to think about but as Principle 1 states – The Best Protection is Knowledge.  The more you know about the importance of retirement planning and the consequences of doing it or not doing it the better prepared you will be to take those first steps toward reaching your retirement goals.

Discussion Questions and Assignment:

  1. Take a look at the article “Uncle Sam Wants You to Save for Retirement” from TransAmerica.  What did this article suggest?  Be prepared to discuss it in class.
  2. Take a look at “A Source of Inspiration: Future Early Retirees” from the TransAmerica 2011 retirement survey.  What did you find?  What two things surprised you the most from this study?  Be prepared to discuss your finding with your class.
  3. Take a look at “A Source of Inspiration: Future Early Retirees” from the TransAmerica 2011 retirement survey.   Pick two slides from the study and write a one page paper on why you found them both surprising and interesting.  Be prepared to share your findings with your class.
  4. Review Principle 3 – The Time Value of Money.  Be prepared to discuss how this concept can impact on your retirement savings goals.
Posted in Ch.11, Investment Basics, Ch.16, Retirement Planning | Tagged , , , , , , , | Leave a comment