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Archive for the ‘Money & Happiness’ Category

Another Reason to Choose a State College

Wednesday, September 15th, 2010

The Wall Street Journal this week published a survey showing U.S. companies prefer to hire graduates of large state universities for entry-level positions over graduates of Ivy League schools.

The Journal surveyed 479 recruiters at the largest public and private companies, nonprofits and government agencies. Among the 25 highest-ranked schools, 19 were public. Their top choices for graduates who are best prepared and most able to succeed: Pennsylvania State, Texas A&M and University of Illinois at Urbana-Champaign.

(I’m a proud graduate of the Illinois’ journalism program and will be in Champaign as an Illini Comeback Guest October 21-23.)

Private schools in the top 25 included Cornell University, Carnegie Mellon and University of Notre Dame.

The Journal study is encouraging to parents who feel overwhelmed by the cost of college. Private four-year colleges charge, on average, $26,273 per year in tuition and fees, according to the College Board. Add in another $12K or so for room and board, books and supplies and transportation.

Public four-year colleges, by contrast, charge an average of $7,020 annually in tuition and fees for in-state students and an average of $11,528 for those who live out-of-state, according to the College Board.  

I covered this topic in the past, reporting on a study that found 20 years out of college, equally talented students who attended state universities earned just as much as students who went to Ivy League institutions.

Students who have a possibility of getting into the Ivies — which reject more than 90 percent of those who apply — are usually inundated with offers from lesser schools. Someone who plans to go directly to graduate school or law school should consider those other institutions, says Mark Kantrowitz, founder of finaid.org.

As he put it:  ”If you get a PhD. from Harvard, nobody cares if you got your undergrad from Podunk U.”

Earnings Over $75K Don’t Buy A Lot More Happiness: Study

Tuesday, September 7th, 2010

A lot of media today are jumping on a story that I broke two months ago in my Yahoo!Finance column: A new study shows earnings beyond $75,000 don’t buy a whole lot more happiness.

Back on July 7, I reported on the study by Nobel laureate Daniel Kahneman and Angus Deaton of Princeton University. They analyzed more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 U.S. residents from 2008 to 2009. This survey used a “ladder” scale question, asking people to rank their happiness with their lives on an imaginary scale from 0 to 10. It also asked questions about emotional experiences in the prior day.

The authors found that while hedonic well-being — or happy feelings — rises with income, it plateaus around $75,000 — although life satisfaction ratings continue to improve. Moreover, lower income exacerbated the emotional pain associated with poor health, divorce and being alone.

“More money does not necessarily buy more happiness, but less money is associated with emotional pain,” the authors write. “Perhaps $75,000 is a threshold beyond which further increases of income no longer improve people’s ability to do what matters most to their emotional well-being: spending time with people they like, avoiding pain and disease and enjoying leisure. It is also likely that when income rises beyond this value the increased ability to purchase positive experiences is balanced, on average, by some negative effects.”

Those negative effects might be a highly stressful job, a long commute, a toxic boss or long hours that keep a worker tied up at the office and away from family and friends. “Our data … do not imply that people will not be happy with a raise from $100,000 to $150,000, or that they will be indifferent to an equivalent drop of income,” the authors write. “Changes of income in the high range certainly have emotional consequences. What the data suggest is that above a certain level of stable income, people’s emotional well-being is constrained by other factors in their temperament and their life circumstances.” 

What do you think? Would $75,000 a year do it for you? Comment here or email me at laura at laurarowley dot com.

Lottery Winners and Insuring the Future

Friday, September 3rd, 2010

My Yahoo!Finance column this week looks at a new study that finds big lottery winners — those who win $150,000 — are just as likely to declare bankruptcy as those who win $10,000. That doesn’t mean that lottery winners are more likely than the general population to declare bankruptcy — it just means people who don’t know how to manage money apparently maintain their unwise habits when they get a windfall. About 5 percent of winners in the study filed Chapter 7 or Chapter 13 within five years of winning the jackpot.

What struck me most about the study was the finding that when the big winners did file for bankrtupcy, they had net assets that were very similar to people who won much less. In other words, they blew the money. They didn’t buy stocks or bonds, put the cash into savings, pay off their mortgages or purchase a home for cash. Since these were Florida lottery winners, the latter two strategies would have been especially wise, since the state allows homeowners to keep their primary residence out of bankruptcy. (Some Floridians have been known to game the system by buying the biggest home possible for cash before they file to keep some of their assets out of bankruptcy court. The lottery winners in the study didn’t do that.)

Consider, for example, this tale of two lottery winners: First, Dr. Shirley Press, who won $17 million in the Florida lottery in 2001. She grew up poor in Camden, NJ. Her father was a grocer and her mother a nursery school teacher (both were Holocaust survivors). Press worked hard, went to medical school and became director of pediatric emergency care at a hospital.

After she won the lottery, Press, now 59, continued to work one day a week. She serves on the board of the hospital’s charitable foundation and started another charity that pays uninsured medical expenses for Holocaust survivors. She and her husband made sure their two children, now in their 20s, got an education and a career, and could support themselves. “We insist on that — that was one of our goals to make them self-sufficient and lead a normal life,” she told the Miami Herald. Press and her husband live in a 2,900-square-foot home, and she drives a Toyota Camry hybrid.

Now consider  Alex Snellius, 73, who collected an $18.5 million prize in 2000 in Illinois’ Big Game lottery. Now it’s mostly gone. Snelius, a retired truck mechanic who immigrated from Lithuania, bought houses for all four of his children and eight other relatives to live in, including paying for a $1.4 million copy of Elvis Presley’s Graceland mansion for his daughter and son-in-law. ”I spent money like it was running through your hands,” Snelius told the Chicago Sun-Times.

Snelius said his lottery windfall was both a blessing and a curse — he has lost friends who borrowed money and never paid him back, and received thousands of requests from strangers who needed cash. When he overheard cash-strapped parents in a store tell their children they couldn’t afford to buy something, he would sometimes hand them a $100. ”It’s beyond imagination what a pleasure it is to give,” Snelius told the Sun-Times. He also gave to charities.  He now drives a 10-year-old car and would like to sell his home in a wealthy suburb and move back to “the other side of the tracks,” as he put it. 

I never play the lottery — sometimes my husband will buy us a ticket if the jackpot is over $200 million just for entertainment value (although we do actually know a family that won $10 million. Somehow I think this diminishes our odds. How likely is it to have two major lottery winners from the same town?)  But in terms of securing our financial future, we take the more mundane approach — earn, save, invest, use a budget that helps us live within our means. And we have enough life insurance to take care of the other person and the kids in a worst-case scenario. Unfortunately, the number of Americans who have life insurance has declined in the last few years. Check out my Real Simple post on that here. 

What would you do if you won the lottery? How would your life change? Comment here or email me at laura at laurarowley dot com.

Advice for the Homeowner Looking to Trade-Up

Monday, August 30th, 2010

I appeared on CNN’s “Your Bottom Line” this past weekend to give advice to Michael Andrews, who has been looking to sell his home in Maryland and move up to a larger place before his son started kindergarten this fall. He and his wife bought in 2005, close to the top of the market. The problem: Prices are forecast to decline another 10 percent in Prince George’s County in 2010 because of an oversupply of homes on the market. Although sales are up over last year, and homes are on the market a shorter length of time, that may be because of more foreclosure sales, and banks agreeing to short sales.

The Andrews live in a family-oriented community with low crime and good schools. Michael works for the University of Maryland and his wife for the federal government. The last few years, the university has not offered cost-of-living increases, and even furloughed workers because of budget constraints. Michael told CNN that he can’t refinance, and that his mortgage interest rate is “kind of high.”

Television time constraints being what they are, I didn’t have a chance to give a full response to the Andrews’ situation. I thought I’d give it here, since so many homeowners are in a similar boat:

1) Before they consider a move, the Andrews should reinforce their financial foundation. They have
a “kind of high interest” loan and can’t refinance. Why can’t they refinance? Typically it’s an issue of inadequate income, excessive debt, negative equity or poor credit. If they are underwater on the loan, they don’t have a whole lot of options. But if the issue is excessive debt or poor credit, they can tackle those issues. Lenders typically look for a debt-to-income (DTI) ratio of roughly 40 percent – meaning all monthly debt payments are no more than 40 percent of monthly income. (So if someone earns $60,000 and takes home $5,000 each month, their debts should total no more than $2,000.)

The Andrews should eliminate all revolving debt (credit cards, car loans, home equity lines of credit),and save up at least six months living expenses in the event of a job loss. As they pay off debt and boost savings, their credit scores will organically improve.

2. The Andrews should look at the bigger picture and rank their priorities. Maybe it’s wiser to open a 529 college savings plan for their son than to buy a bigger home, because the cost of college continues to exceed inflation (and the amount most people are receiving in their investment returns). To reach the goal, you have to start early. 

3. Remember the “hedonic treadmill.” Psychologically, very often the more we have the more we want; we get something – like a home – adapt to it, and want a bigger home. But the Andrews probably won’t enjoy a bigger home as much as they expect: There will be a higher mortgage payment, higher property taxes, utilities, insurance and maintenance costs, and possibly a longer commute. That may reduce the happiness they get from the purchase. 

They should think about other uses for the money they would put into a bigger home. Research shows the money spent on experiences, and time with family and friends, makes us happier than the money spent on things. So they might find higher well-being spending the money on traveling, sporting or cultural events, or hosting barbecues for family or friends right in their own back yard.

Saving on Back-to-School Shopping on GMA

Tuesday, August 10th, 2010

I worked with Good Morning America on two segments that aired Monday and today, helping the Myer family of Connecticut save on back-to-school supplies and back-to-school clothing. We were able to cut their annual budget in half with a number of strategies. (In my own family, we’re waiting for Labor Day sales to tackle the clothing needs, but we finished our school supply shopping at the end of July, and saved a bundle over last year by shopping at a big-box store (Target) over an office supply store (Staples). Here’s the video from today’s Good Morning America:

Like me, Beth Myers has three kids — Emily, 12, who is going into seventh, Brian, 10, who is entering fifth grade and Lindsay, 3, who is headed off to pre-school. Clothing costs can get pretty hairy at this age, when your kids start to gravitate to the specialty stores in the mall where their friends shop. Here’s the segment where we discussed ways to save on your back to school clothing budget:

Back to school is a great time to talk to kids about the value of a dollar, and try to instill a few money lessons. Click here to see a few of the outtakes with additional ideas.

I also contributed to a Bankrate.com slide show featuring a roundup of back-to-school shopping tips. Check out Heather Larson’s story here. How will you save on back-to-school shopping this year? Comment here or email me at laura at laurarowley dot com.

Meanwhile, back-to-school is one tiny drop in an ocean of parental financial responsibility. Is it possible to keep life, and finances, simple and frugal after you have kids? Check out that topic — and post your comments — on my Real Simple blog.

Fighting Financial Boogeymen

Wednesday, August 4th, 2010

MSN Columnist Donna Freedman has a nice piece today called “Scaring Off the Financial Boogeyman,” which looks at deep-seated beliefs that limit our progress to wealth and happiness. She quotes me talking about how to let go of financial fears that set you back, by setting blue-sky goals and listening to that inner voice that tells you why they’re impossible.

What illusions about money are blocking you from grabbing hold of your financial life? Whether your money issue is related to earning, spending or saving, here are eight steps to changing your worldview:

1. Make a radical proposal to yourself around wealth: I want to earn/have/do ______.

2. Listen to the inner voice of protest: You can’t because ______.

3. Challenge your doubts: That objection is false because ______.

4. Identify the beliefs behind them: I thought that way because I believed ______.

5. Examine the origin of the beliefs: I learned that when ______.

6. Revisit the experiences and emotions that gave birth to the beliefs: That lesson took hold when I experienced ______.

7. Challenge the belief system: The belief is untrue because ______.

8. Shift to a new paradigm: The truth is, I can earn/have/do ______ because ______.

We don’t have to be victims of our worldview. The way we manage money, our attitude toward it, is ultimately a choice. No matter what money mind-set we have developed over time through life experience, we have the power to re-shape it. We can work around our money personalities; we can seek out individuals and communities that support our goals rather than hold us back; we can reject negative beliefs we learned in childhood and choose a healthier set of values.

Have you overcome a negative illusion that blocked you from achieving financial well-being? Comment here or email me at laura at laurarowley dot com.

Structuring Your Resume to Close a Gap

Wednesday, July 28th, 2010

My Yahoo!Finance column that appears July 29 examines ways to plug a gap in a resume. In June 2010, nearly 7 million Americans were out of work for more than six months, a five-fold increase since 2007. The story looks at various strategies to explain a gap in employment. But job seekers can also structure their resumes to divert attention away from a gap.

Start with a profile of three or four lines that describes who you are and puts the rest of the page in context, advises Patrick Knisley, who teaches business writing, including resume and cover letter skills, at the Fashion Institute of Technology (FIT) in New York.

“If the first thing I see is your most recent job ended two years ago, I’m going to focus on that; but if I read something about your hard and soft skills, the gap is not so jarring,” Knisley says.

Knisley says a profile might read: “Interior design graduate with three years experience at architectural firm; skilled at Autocad, sketching and three-dimensional digital models; strategic thinker, problem solver, good communication skills.”

Some workers disguise a gap by crafting a resume that’s thematic rather than a chronological, but Knisley doesn’t recommend it. “Hiring managers know why it’s been written that way,” he says. “Do a chronological resume and put the dates to the right — and not in bold.” More experienced workers can cover a smaller gap by listing only the years of employment, rather than months and years, he adds.

In addition, workers can count a severance period as part of their workplace tenure, says Paul Bernard, president of Paul Bernard & Associates, an executive coaching firm in New York. “If you were let go on July 1 and have six months of severance, you can tell employers, ‘I’m still working now, but I know my job is going to be disappearing in six months, so I am actively looking.’ If you are still collecting a paycheck, you’re still employed.”

Have you found a creative way to fill a gap? Comment here or email me at laura at laura rowley dot com. 

Understanding Points in A Mortgage Transaction

Wednesday, July 21st, 2010

My Yahoo!Finance column for July 22 looks at new research that finds consumers who shop for a mortgage pay attention to the wrong issues and make mistakes that result in thousands of dollars in extra costs. 

One of those costs that can cause a great deal of confusion is something known as “points” or “discount points.” I ran out of room to explain them in the story, so here’s the skinny: Points are an amount borrowers pay to “buy down” the interest rate on the loan. They only make sense if you’re going to stay in a home for a fairly long period of time, typically a decade. 

Here’s an example: A borrower is offered a $200,000, fixed-rate mortgage at 6 percent for 30 years. The monthly payment is about $1,200 and the total cost (principal plus interest) is $431,676 over the life of the loan. A point is a percentage point. By paying two points (2% of $200,000, or $4,000) at the closing, the borrower can reduce the interest rate to 5.75 percent. 

Under that scenario, the monthly payment drops to $1,167, so the borrower saves $33 a month. Divide the cost — $4,000 — by $33. The buyers would have to be in the home 121 months, or about 10 years, to break even. (With the lower rate, the total cost of the loan drops to $420,127, saving $11,550 in interest — less $4,000 paid in points –  if the homeowner stays put for the life of the loan.)

I paid points on my mortgage to lower the rate because we knew we would be in the home for a while (it’s seven years and counting). I wanted a lower fixed monthly payment because as a freelancer, my income can vary from year to year. (I call it “The Starbucks Mortgage.” If the columnist thing disappears and I have to work as a barista, I can still pay the mortgage.)

my dream crib

The other issue to keep in mind is that if you pay points, that gives your mortgage broker additional compensation, and so you’re entitled to a rock-bottom interest rate. You want to pay “par” for the loan with no yield spread premium(something I explain in the column). 

The key is to ask for options, says Carolyn Warren, a veteran broker/lender who assails dishonest practices in her book “Homebuyers Beware: Who’s Ripping You Off Now? 

“Ethical honest loan officers always give borrowers a choice,” she says. “You can see which one makes the most sense for you depending on how long going to keep the property. The problem is people don’t ask for any options, and the loan officer doesn’t offer options – instead he says, ‘it’s a 1 percent origination fee and 5 percent rate on the mortgage.’” 

Also beware of a lender who suggests you pay points along with an array of other charges.  ”I see loans where there is a 1 percent origination fee, one point, and a big yield spread premium besides, and the broker ends up making $10,000 on the loan,” says Warren. “It happens a lot; brokers are paid upfront and on the back end and make more than a physician – and with high school diploma. But there’s no reason that has to happen to anybody if he is savvy and shops in a smart way.” 

What’s your mortgage experience? Nightmare or gateway to the American dream? Share your stories and tips by commenting here, or email me at laura at laurarowley dot com. 

 

 

  

 
 

 

Archive of Personal Finance Stories & Tips

Wednesday, July 7th, 2010

Since we’ve hit the midway point this year, I thought it would be helpful to offer an archive of Yahoo!Finance columns for the first half of 2010, with links to the stories (they can be tricky to find on the site). Here are the stories, from this week’s column going back to January (click on the headline to see this post in one column):

July 8: How Much Money Do You Need to Be Satisfied? Two new research papers argue that money can buy life satisfaction, but not happy feelings — and that earnings beyond $75,000 a year don’t buy a lot more happiness.

July 1: Surprising Ways to Boost Your Finances: This column reveals new research with some unexpected strategies to help you build savings and attack debt.

June 24: Unique Job Search Tactics That Work: How to stand out in a haystack when all the needles look the same.

June 17: The Happiness of Choosing Wisely: Framing life in terms of choice is hard work, but can offer rich rewards.

June 10: Five Ways to Minimize Your Credit Card Pain: The New CARD Act may not protect you in the ways you expect.

June 3: Making the Most of Irrational Behavior: A new book by Duke psychologist Dan Ariely shows how to transform foolish impulses into greater happiness.

May 26: Boost Wealth By Sharing Financial Chores: Studies find the way couples split financial tasks makes a difference in both money and happiness.

May 19: Starving for Yield on Savings: Rock-bottom interest rates are a stealth tax on savers.

May 12: Fast Track to Financial Success: This story unveils the secret tools, traits, motivations and behaviors that build wealth.

May 5:  What Goes Around Comes Around for Banks: A rash of new reports show Americans continuing to lose faith in their workplaces and institutions.

April 29: Priced Out of the Top Public Schools: Middle-class parents who want the best education for their kids face difficult choices.

April 22: Find Extra Money Now in Your Tax Return: A stroll through the numbers can boost your financial outlook in the year ahead.

April 15: Six Money Tips for Recent College Graduates: Behavioral economics offers unconventional but practical financial advice for people entering the workforce.

April 8: Two Tips for Boosting Your Happiness: A look at two new research studies — one suggests that’s what matters most when it comes to money and happiness is not absolute income, but where we rank compared to peers; a second finds a connection between happiness and meaningful conversation.

April 1 Improving Your Relationship with Money: Financial well-being demands we embrace the ordinary and the simple rather than looking for short-cuts, because simple perseverance in following certain personal finance ”standards” can yield extraordinary results, not to mention financial peace of mind.

March 25: How to Make Smarter Choices: A review of  the book “The Art of Choosing” by Columbia University psychologist Sheena Iyengar.

March 18: How to Be Your Own Financial Regulator: Although financial reform is coming,  a little common sense goes a long way in avoiding the major pitfalls of consumer finance. Here are some rules of the road.

March 11:  Two Job Markets, Worlds Apart: In the fourth quarter of 2009, there was no recession for the highest-income households:  The unemployment rate for people in the top 10 percent of income — those earning more than $150,000 a year — was just 3 percent, while the unemployment rate for the bottom 10 percent of earners — workers who bring home less than $12,500 annually — was 31 percent. This story explains why.

March 4:  You Can Save the Smart Way: How to turn an extra $35.86 a month into $24,000 in savings.

February 25: The Myth of the $18,000 Wedding: Consumers’ willingness to pay can be easily manipulated because we often don’t have a good handle on our preferences or a rational baseline for the decisions.

February 18: Would You Do This to Double Your Pay? People are often willing to trade time for money, even though a variety of studies have found people who are “time affluent” are happier than those who are materially affluent.

February 11: Loving Your Day Job and Your Life: A review of  ”The Artist in the Office: How to Creatively Survive and Thrive Seven Days a Week” by Summer Pierre. The book offers inspiration and practical tips not only to frustrated artists, but alienated workers clinging to jobs they hate, reluctant to move on because of the tough economy.

February 4: Big Brother Wants You to Be Happy: A review of the book “Happiness Around the World: The Paradox of Happy Peasants and Miserable Millionaires” by Carol Graham, senior fellow at the Brookings Institution.

January 28: Finding Free and Low-Cost Tax Help: Exactly what the headline says.

January 21: Could the Credit Card Act Ruin You Financially: Before extending credit, companies must now consider an applicant’s “ability to pay” — or their income and debt load. That means they’ll be verifying what consumers say they earn on credit card applications.It’s a consequence of the law that few advocates have talked about: What will happen to the millions of financially strapped consumers and small business owners who’ve become dependent on credit cards in times of crisis?

January 14: Easy Tips to Avoid Being Ripped Off: A review of the new book “Stop Getting Ripped Off: Why Consumers Get Screwed and How You Can Always Get a Fair Deal” by Bob Sullivan, who writes the Red Tape Chronicles for MSNBC.

January 7: Miserable at Work? You’re Not Alone: Job satisfaction in America hit a record low in 2009, according to the Conference Board — with only 45 percent of workers reporting contentment with their jobs. Here’s why.

Do you have a column idea for me? Comment here or email me at laura at laurarowley dot com.

Economic Blast from the Past

Tuesday, July 6th, 2010

Back in 2008 — when everyone I knew who worked on Wall Street told me the sky was falling — I wrote a Yahoo!Finance column about research by Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University. Their work showed that the downturn was characterized by many of the same factors that caused financial blowouts in the past. The book that emerged from their research, aptly titled “This Time Is Different,” was published last September and has sold 100,000 copies. Check out this Sunday New York Times story for interesting profiles of Reinhart and Rogoff.

This week I’m delving into new survey data from Ed Diener of the University of Illinois and Gallup, which interviewed 136,000 people in 132 countries on money and happiness. It’s an intriguing survey because it measures “happiness” in several ways, using different evaluative scales. Watch for that piece on Thursday, July 8.

Happiness has been on my mind this weekend, because while I spent a lovely weekend watching fireworks over a lake with my husband and kids, my brother spent it in the intensive care unit of a hospital in Chicago following emergency surgery. If you’re a reader of spiritual persuasion, I’d appreciate your prayers.

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