Thanks to all of the readers who sent me well wishes after my final column on Yahoo!Finance, which appeared July 28. The piece was a tribute to my brother-in-law Bob, who was married to my sister for 38 years and died in late July at age 59 after a long battle with a brain tumor. A father of five, a coach, a generous volunteer and a man of faith, Bob had a unique talent for finding the good in everyone. I hope you’ll read the column.
On August 1, I joined AOL Daily Finance, part of The Huffington Post Media Group. I’m delighted to back in a newsroom in New York City with a terrifically smart group of reporters after working mainly from home for a number of years. I’m trading a weekly column, teaching a moral values class at Seton Hall University and book writing — I just finished my sixth — for full-time reporting, and couldn’t be happier.
I am covering retirement, consumer issues and, of course, money and happiness, across a range of media platforms. Journalism is shifting at lightning speed, and The HuffPost has assembled a forward-thinking team to test the limits of what is possible. I’m excited to join them.
I’ll still be doing interviews and TV appearances on personal finance topics (look for an upcoming piece in The Miami Herald and a Better TV appearance in late September).
Here are links to my recent stories. I’ll continue to post them here on a weekly basis, or please follow me on Twitter @MoneyHappiness. Stories will go up there daily. Please continue to send me your questions and thoughts at firstname.lastname@example.org. As always, wishing you eudaimonia in abundance!
- Blogging Again
- Earnings Over $75K Don’t Buy A Lot More Happiness: Study
- Jon Stewart’s Take on CNBC
- When Swamped with High-Quality Supply, Consumers Spend More, Not Less
- Check Your Receipts for Errors
Researchers at the University of California San Diego and New York University asked college students to calculate how much they would have saved after putting aside $400 per month for 40 years compounded at a 10 percent annual rate. The typical undergraduate estimated the total at less than $250,000, when, in reality, it would be nearly $2.5 million. The research appears in a forthcoming special issue of the Journal of Marketing.
Craig McKenzie, psychology professor at UC San Diego, spoke about the research last month at a conference I attended in Boulder, Colorado on consumer financial decision making.
“One group had to do an intuitive estimate, while another group was given a simple calculator – but they gave essentially the same answer,” he said. “People grossly underestimate the cost of waiting to save, and that bias has important implications. They think they can wait 20 years and save twice as much later to make it up, when in fact they will have to save five, seven or eight times as much because they are not taking advantage of the exponential growth.”
To illustrate the point, college students were asked to estimate how much would be needed to compensate for not saving $100 per month for the first 20 years of a 40-year career, in which interest was compounded at a 10 percent annual rate. More than half of undergraduates estimated they would need to save $200 per month to make up for the 20-year delay in saving. However, it would require nearly $800 per month to make up for the lost time.
McKenzie and co-author Michael Liersch find that drawing people’s attention to the exponential growth of savings motivates them to boost their nest egg. For example, in one study, employees in a Fortune 100 company were shown their projected future account balances, rather than their present 401(k) balances. Future account balances motivated employees to want to save more.
The reality is, consumers have a hard time managing the interrelated concepts of interest rates, monthly savings or payments and time. This week’s Yahoo!Finance column (out tomorrow) looks at research presented at the same conference on these issues as they relate to credit card debt, and why we tend to underestimate the amount of time it takes to pay off plastic.
Elsewhere, the Consumer Financial Protection Bureau officially opens for business tomorrow, and it’s already out with a study on credit scores. The CFPB found that the credit score you receive from one of the credit bureaus may be very different from the score the bureau gives to a lender who asks for your score. Credit reporting agencies use different models and choose different financial data to crunch into different credit scores for consumers than they do for banks, retailers, landlords and other creditors. Check out this CNNMoney story for more.
- Many don’t understand their credit scores
- Credit Scores May Become Free…For Uneducated Consumers
- Making Financial Fitness Fun
- Credit Cardholders’ Bill of Rights Act
- Freecreditreport.com: Annoying
On July 4th, I appeared on The Willis Report on Fox Business News. I weighed in on the topic of declaring your financial independence, something near and dear to my heart. (Sorry I don’t have video, here’s a transcript and a related story on the topic.) The advice below may strike you as pretty common sense, but I follow it religiously, and it helps me live a value-driven life, without stressing a lot about money:
1) Thou shalt not live beyond thy means: Get a budgeting tool that works for you so you know exactly what’s coming in, exactly what’s going out — and then make choices and set goals for the money based on what you value most. Be creative; fun is often free (see my previous post regarding Bananagrams and country club fireworks, and #2 below.)
2) Thou shalt set aside 3-6 months of funds for emergencies. Once you have a handle on step number 1, it is easier than you think to get to step number 2. Be frugal in things that don’t make much of a difference in your lifestyle (stick with generic household brands, call your insurer once a year and try to get your auto and homeowners premiums reduced).
And make the most of freebies! My friend Julia Scott over at the BargainBabe has some terrific stuff on tap today…free ice cream, free bowling, even a free bra. Lots of coupons too. Use your savings to build a rainy day fund that will give you peace of mind.
3) Thou shalt pay off any balance on thy credit cards in full and on time each month. Just do it.
4) Get the best deal on major financial products. Don’t spend your precious time saving 25 cents on a can of tuna. Worry about getting competitive bids from at least three lenders when you take out a mortgage or a car loan. Learn how to take care of your credit score, which will get you the lowest interest rates on loans and save you tens of thousands of dollars over time. Get the big purchases right. They matter.
5) Save early and often for retirement and the cost of college for your kids. Try to do it in a tax-advantaged vehicle, such as a 401(k) and IRA for retirement, and a 529 savings plan for college. It is enormously hard to catch up if you don’t get in the habit early on, and the earlier you start the more compounding works to your advantage.
Let’s say that starting at age 22, you set aside $5.50 a day ($2,000 a year) in a Roth IRA, and stop at age 30. Assume your savings grow at an average of 9 percent a year and you don’t touch the money until you’re 65. You’ll have more than $500,000 for retirement — and you’ll have a bigger nest egg than someone who starts at age 31 and contributes for 35 years! That is the power, the beauty, the majesty of compounding at work! (Yes, I was one of those dorky 22-year-olds who embraced retirement planning.)
Don’t understand investing? Spend an hour with a fee-only investment planner who can help you choose appropriate funds for your age and risk appetite. Tell this planner you want to use index funds and other investments that have very low fees. Do not choose a planner who earns a commission for getting you to invest in specific products.
Okay, lecture is over, class dismissed. Have a great weekend.
What rules have proven invaluable to you in achieving financial independence and peace of mind? Comment here or email me at laura at laurarowley dot com.
- Making Smarter Financial Choices
- The Habits of Financially Peaceful People
- Should I Pay Off The Mortgage?
- 529 Pain
- College Savings and Financial Aid Eligibility
Economics 101 states that price declines as supply increases. But today’s Yahoo!Finance column covers a new study showing when it comes to high-quality purchases, that’s not true. When confronted with a dense selection of luxury items, consumers’ focus shifts away from price to quality, and they tend to overspend.
In any case, if you’re wondering where I’ve been these last few weeks, the answer is simple, chained to my computer. And traveling while chained to my computer. I hosted a roundtable on personal finance for the members of Women in Cable Television at Time Warner Center in New York in late June (here’s a related story). We celebrated the eighth grade graduation of my oldest daughter. Then I headed out to the Boulder Summer Conference on Consumer Financial Decision Making, sponsored by the Leeds Business School at the University of Colorado. In a gorgeous mountain setting, some terrific research was presented (I’m fascinated by things like annuity purchase decisions). Watch for upcoming stories.
I went almost directly from Colorado to Chicago for my mother’s 80th birthday, which was celebrated by her eleven children and 26 grandchildren (and my dad was no doubt there in spirit). Beautiful. Thanks to my college roommate Patty for putting us up, showing fabulous sportsmanship in multiple rounds of Bananagrams, and for taking us to the hospital parking lot where you can watch the country club fireworks for free. Sweet. Thanks to brother Tom for hosting a BBQ for basically a million of us at his place on July 4. And thanks to my niece Ellie for pushing him in the pool. Classic.
Meanwhile, the deadline for my sixth book arrives at the end of the month. A crazy summer, but as my friend Elizabeth likes to say, it’s all good. I’ve spent so many years juggling multiple projects on deadline (and three kids), I’ve become the zen master. It all gets done somehow. (As my heroine Eleanor Roosevelt said, “You must do the thing you think you cannnot do.”) Maybe it’s a mid-life thing, but I’ve finally learned you can meet a deadline kicking, screaming and weeping, or meet a deadline without kicking, screaming and weeping. The latter choice makes you, and the people you love, a lot happier. (A cold glass of Vouvray now and then after a long day of writing helps too.)
Finally, on August 1, I am leaving Yahoo!Finance to join AOL/The Huffington Post as a senior writer on the business desk, heading up retirement coverage, continuing to provide personal finance tips in the media, and keeping tabs on the topic of money and happiness. Thanks to the kind folks at Yahoo!Finance, including Becky Auslander, Chris Hunter, Bahareh Ramin, Diane Galligan and Lisa Scherzer, and former Yahoos Christopher Jones, Mark Holcomb and Tanya Singer. It was an awesome six years.
I’ll continue to blog here as well, so drop me a line with questions or comments at laura at laurarowley dot com.
- Loving Life With No Cable
- Asking for “Grace Days” on a Credit Payment
- Where the Jobs Are in 2008
- Good Morning America: Cutting Travel Costs
- Credit Scores May Become Free…For Uneducated Consumers
Just one year after the U.S. Department of Transportation issued its rules on tarmac delays, only 20 delays of three hours or more were reported. That compares with 693 delays in the prior year, before the rules were implemented — a whopping 97 percent decline.
Critics had predicted that the rules, which slap the airlines with hefty fines if they leave passengers sitting on the tarmac for more than three hours, would result in an epidemic of airline cancellations, as carriers terminated flights to avoid the rule.
That didn’t happen: The number of canceled flights with tarmac delays of more than two hours – those most likely to be canceled to avoid violating the rule – increased only slightly, from 336 between May 2009 and April 2010 to 387 between May 2010 and April 2011, the DOT reported.
These additional 51 cancellations compare to more than six million flights operated by the reporting carriers in a given year, the DOT reports.
Could rules governing the worst financial products (pay day loans, toxic mortgages) produce similar wins for consumers? As I noted in today’s Yahoo!Finance column, the Consumer Financial Protection Bureau, a new agency created by the Dodd-Frank financial regulation bill, is set to open July 21. The CFPB’s goal is to provide more transparency to consumers so they can compare financial products in an apples-to-apples way, and will be the first government agency focused solely on the welfare of consumers in financial transactions. (The mission of existing agencies is focused on the soundness of banks. What exactly did The Fed do amid warnings that out-of-control lending would lead to a real estate collapse? It kept interest rates really really low.)
But the CFPB must have a director in place by July 21 to receive its regulatory authority. That should rightly be Elizabeth Warren, the Harvard law professor who set up the agency as a special advisor to the president. But Senate Republicans have vowed to block the nomination of any director unless major changes are made to the agency. Consumer advocates charge that the GOP is trying to weaken the agency’s powers at the behest of Wall Street and the financial services lobby, while the senators say the agency will stifle financial innovation.
We don’t have to look to other industries for examples of regulatory success. See this 2009 post about Vermont, which had the lowest foreclosure rate in the country. Vermont also has some of the most rigorous mortgage lending laws, requiring mortgage brokers, for example, to have a fiduciary duty toward borrowers, that puts them partly on the hook if a client defaults.
We have a Consumer Product Safety Commission to make sure dangerous products don’t kill or maim. We have an Environmental Protection Agency to insure polluters don’t do the same. We have a Department of Transportation to keep consumers safe and help make travel a minimally decent affair. Why not an agency that helps ensure people don’t wreck their financial lives?
Click here to sign a petition calling on Republicans to stop blocking Warren’s nomination.
- Consumer Financial Protection Bureau Sets Priorities
- Bumped But Happy: The New FAA Rules
- Sotomayor Gets a Windfall: Karmic Justice?
- Tax Refunds Delayed
- Archive of Personal Finance Stories & Tips
This week’s Yahoo!Finance column tackles the issue of financial literacy, and discusses whether a new agency devoted to consumer financial protection can make a dent in the larger problem. How literate are you? Just 10% of people surveyed by literacy expert Anna Maria Lusardi got 100% on the following test. Give it a try.
1) Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know
e. Refuse to answer
2) Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
a. More than today
b. Exactly the same
c. Less than today
d. Do not know
e. Refuse to answer
3) If interest rates rise, what will typically happen to bond prices?
a. They will rise
b. They will fall
c. They will stay the same
d. There is no relationship between bond prices and the interest rates
e. Do not know
f. Refuse to answer
4) Please tell me whether this statement is true or false. A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less.
c. Do not know
d. Refuse to answer
5) Please tell me whether this statement is true or false. Buying a single company’s stock usually provides a safer return than a stock mutual fund.
c. Do not know
d. Refuse to answer
(Answers: a, c, b, a, b)
- Try This Financial Literacy Test
- Should you pay off your mortgage early or invest in your 401(k)?
- Save Money by Rounding Up Your Payments
- A Primer on Rate Cuts
- To Pay and Pay Off
Last night I started my Christmas shopping. I have sworn for years that I would do this — shop online WAY ahead of the season, buy a little at a time, and wrap the goods the second they arrive so I’m stress-free in December. I have three kids, so I started with classic winter clothes for the youngest on landsend.com and companykids.com. Did you know you can find brand spanking new winter sweaters for 60 to 70 percent off the original price if you’re willing to shop in June?
My kids don’t read the blog, fortunately, so I can give you a couple examples: Check out this Girls’ Shawl Collar Cardigan marked down from $29.50 to $9.99 (I got the raspberry). Or this sweet bow-tie sweater marked down from $34 to $9.99. I also got free shipping on the Lands End stuff by using the promotion code COOLER from RetailMeNot (pin: 4353). This promo lasts through June 9. Before you buy, always do an internet search for the name of the store and the word “coupon.” I’m a girl with an eye for a pre-holiday bargain, so send me your favorite sale sites. (My kids are 14, 11 and 8).
Speaking of bargains and freebies, check out some nice offers over at the Bargain Babe this Friday: free food, MP3 downloads, magazines, museum passes; cheap Dodgers baseball tickets, and even bikini separates for $5. Sounds like the makings of a perfect weekend. Enjoy!
(You can always comment on the site or contact me at laura at laurarowley dot com.)
- Valentines Freebies from the Bargain Babe
- My First Grocery Freebie
- File Taxes for Free & Other Bargains
- Best Online Bets for Your Financials
- Tips on Buying Used Cars
Check out my post over at RealSimple.com about Supreme Court Justice Sonia Sotomayor, who on Friday disclosed that she had received a $1.2 million book advance for the story of her early life. Seems a fitting reward for a life of public and personal service.
Meanwhile, my archives over at Yahoo!Finance haven’t been updated in quite a while, so here’s a list of Money & Happiness columns from the last few months. A little beach reading for the Memorial Day Holiday. Cheers.
Jan 13 What Investors Really Want
Feb 10 Spending Money to Fit In
March 3 Be Happy Live Longer
March 17 Time the Market at Your Peril
April 14 The Best Ways to Use a Tax Refund
April 21 Avoid First-Date Financial Disasters
- Would You Want the Woes of the Super Rich?
- Archive of Personal Finance Stories & Tips
- The Gap Between Rich and Rich
- Survey: Who’s Happy? High-Earners, Older People, Republicans
- More best-kept financial planning secrets
My Yahoo!Finance column today looks at a new test offered by a company called Life Length, which estimates your lifespan by measuring your telomeres (structures at the end of your chromosomes). People with relatively short telomeres die sooner than other people, although diet and exercise can affect longevity. Better knowledge of your expected lifespan might enable you to plan your finances with much more precision, because you’d know how many years you would likely spend in retirement, and then save and spend accordingly.
I spoke with Duke University behavioral economist Dan Ariely, who is generally in favor of telomere testing: “Finance is really about understanding what the future is and doing the tradeoffs; in financial reasoning I don’t see much downside. It reduces uncertainty so you can make better decisions.”
But we also discussed unintended consequences. There’s a concept in psychology known as “the mere measurement effect.” Once you get very specific about something, it takes greater prominence in your thinking. “If you measure something, you make it more important by the virtue of measuring it,” says Ariely.
For example, Anna Maria Lusardi of Dartmouth has found that people who put a ballpark number on their retirement goal save more money than those who don’t. Elsewhere, researchers have found that when they called potential voters and asked them if they were planning to go to the polls on election day, they were more likely to do so.
So imagine people are now focused on their mortality. Would it seep into other domains of their lives? For instance, could “telomere scores” becomes one of the factors in online dating? “People will start thinking, ‘how does it feel to outlive somebody?’ ‘Do I want them to outlive me?’” Ariely notes. “When you think about something that’s in present and somewhat in the future — like marriage — it might actually backfire.” In other words, you might rule out guys with short telomeres and blow the opportunity to meet your soul mate.
Ariely and I also talked about the pernicious unintended consequences of a readily available telomere test: It’s feasible to think life insurance companies would require as part of policy underwriting. “Suddenly people who need insurance more would have to pay much more,” says Ariely. “You would lose something very basic about insurance.” Or what about credit card companies? Would they require a telomere test to ensure people with short telomeres don’t run up their cards traveling first class to Paris ahead of their expected demise?
Would you take the test? Why or why not? Comment here or email me at laura at laurarowley dot com.
- Trading Up Just Makes You Poor
- FAQs on IRAs
- Putting Past Financial Decisions in Perspective
- Retirement Worries Grow
- The Gap Between Rich and Rich
Beautiful piece on the Huffington Post by author Anne Naylor today called “How to Restore Your Spirit of Wealth.” She articulates something I’ve always believed — that wealth is really a form of energy. The gift of abundance can manifest itself in cash, but it can also manifest itself through creativity, inspiration, strong relationships, fulfilling work, good health, a robust spiritual life.
Relying too much on cash and materialism for your definition of wealth can leave you depleted, she writes: “The issue is that money and possessions can get ‘sticky.’ That is to say we can become over-dependent upon them. Attached and fearing their loss, we become driven to protect and increase the supply, in case we lose the comfort and pleasure they give us.”
I’m not saying that material wealth is bad, it just has to be kept in perspective. I was chatting about detachment with my friend Claire, a yoga teacher, as we rode a very noisy school bus to our second graders’ field trip this week. There is enormous freedom and joy in not allowing material things to make a claim on our hearts. Enjoy and share generously. If we grasp too tightly our hands and hearts may not be open to accept the other forms of wealth that come along.
Easier said than done, I know. In any case, if you’re feeling down about the numbers in your bank account or the red in your credit card statement, read Naylor’s lovely piece.
Meanwhile, here’s my recent appearance on Meredith’s Better TV on what you should never say to your children about money. Have a great weekend!