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  • Archive for 2017

    Here’s Why Financial Literacy Is For Everyone

    Thursday, April 20th, 2017

    little blog pictureApril is Financial Literacy Month.

    “Financial Literacy” is a somewhat new term and trend in the United States, and for that reason, some find it off-putting and discouraging. Don’t let the fancy phrasing scare you, though. The reality is, financial literacy simply means knowledge about money and savings. Even though most of us didn’t learn the basics of financial knowledge in an educational setting (hopefully that will change in the future!), important, life-changing saving information is easily within reach.

    In fact, understanding of the importance of financially literacy only became widespread in the past fifteen years or so. In 2002, the U.S. Department of Treasury created the Office of Financial Education as a way to organize its efforts in the area. The next year, Congress passed the Fair and Accurate Credit Transactions (FACT) Act, which established the Financial Literacy and Education Commission, a group that later published a “National Strategy on Financial Literacy.”

    That means that, hopefully, financial education will become a standard and required part of education. However, just because it wasn’t something you learned about in school doesn’t mean you cannot become extremely knowledgeable on investing, saving, retirement and other financial topics. It is important for everyone to educate themselves about their finances, but know that you don’t need to be a financial expert to make smart decisions. Some basic information can go a long way.

    In particular, it is important to know what you should be doing at every stage of life to make sure you are on track financially and preparing for long term financial security. WISER’s “7 Life Defining Financial Decisions” booklet breaks down key topics into stages and explains how to approach each one.

    For example, when it comes to jobs and careers, when taking a job, consider not only salary but also benefits. There are two basic kinds of employer-sponsored pension plans: defined benefit and defined contribution plans. When leaving a job, it is important to consider that changing jobs, even for higher pay, can cost you a bundle in lost benefits and retirement income. If at some point in your life you decide to stay home full time, think through the family finances, including retirement planning. Where there are large upsides, you will lose compensation, benefits, job skills and contacts if you leave work completely.

    The booklet offers more advice on financial decision-making at every stage of life. By focusing on life stages and basic information, financial literacy is within reach for everyone.

    Why Saving As A Young Person Is Important

    Thursday, March 23rd, 2017

    “Live while you’re young!” “Youth is wasted on the young!” “I’ll sleep when I’m dead!” “Live in the moment!”

    Everywhere they turn, young people are inundated with messages encouraging them to live now, worry later. In financial terms, that translates to “spend now, save later”—and it’s a hard message to ignore. The internal justifications to spend instead of save often sound like this: all of my friends are planning an expensive trip overseas, why shouldn’t I join them? Why not rack up credit card debt—I’ll be able to pay it off later, when I’m older and have a higher paying job! I’m only young once!

    The same mentality leads to young people to taking out large amounts of student loans, beyond what they may be able to afford or what may be worthwhile. According to new research from the National Endowment for Financial Education, more than 70% of millennials (people ages 23 to 35) have at least one long-term debt, which could be student loans or something else, like a car loan. About 34% of millennials have two long-term loans. These numbers alone are troubling, but to make matters even worse, the research also found that about a quarter of millennials with a retirement account took out a loan or hardship withdrawal in the last 12 months. This emphasizes that many young people are prioritizing the present much more than the future when it comes to finances.

    This trend is putting young people at a serious financial disadvantage—making it more difficult to purchase a home, open a business, or pursue other ventures later in life. Here are several additional reasons why saving as a young person is important:

    Financial Habits Are Set When You’re Young

    The same holds true for any habit: the earlier you adopt it and the more often you carry it out, the more likely it is to stick. Being smart with money is no different. If you are careless about money for most of your life, it will be extremely difficult to switch gears and become a scrupulous saver once there is truly something to save for—like a child or a home. The inverse is also true. If you are smart with money from a young age and put in place good habits, like putting a certain amount of your paycheck each month into savings, you are likely to carry those habits later in life.

    Saving a Little Now Equals A Lot Once You Retire

    We often hear about “the power of compound interest.” We,ll that power is only powerful if you start saving young. The more years that go by, the more powerful compound interest becomes. If you save a little bit as a young person, that money will accrue interest and, by the time it’s time to retire 30 or so years later, a little bit of money will have grown into a lot of money. You can only take advantage of this is if you save early.

    Cost of Living Grows As You Age

     It’s easy to assume that because you can support yourself now, you’ll be able to do so later. However, the cost of living grows dramatically as you age. The odds increase that you will become a caregiver, in terms of both finances and time, for an aging parent or a child. Medical costs also increase as you age. Your salary will also likely grow, but it may not grow enough to support these costs, let alone enough to put aside enough for retirement, when your income will decrease dramatically. Saving early helps ensure financial stability throughout your entire life.

    America Saves Week: Spotlight on Latina Caregivers

    Monday, February 27th, 2017

    America Saves Week (February 27 – March 4, 2017) is an annual opportunity for individuals to assess their savings and take financial action. Each year, we and other organizations across the country encourage savers – or potential savers –to set a goal, make a plan, and save automatically.

     

    America Saves Week is a time when everyone, no matter their income level, age, ethnicity, or gender can think about their savings habits. Even if you already save, the week offers an opportunity to take stock of your savings, make sure you are on track and perhaps encourage others in your life to save more.

    This year, WISER is partnering with MANA, A National Latina Organization to highlight the importance of saving, particularly among Latina caregivers. Caregivers are vulnerable to some unique challenges when it comes to saving. Oftentimes, caregiving responsibilities cause caregivers to have to leave their workplace or reduce hours, and many pay out-of-pocket for caregiving costs which can impact their own future financial security. A MetLife study showed that caregivers lost $303,880 in wages, Social Security benefits, and private pensions over their lifetime as a result of caregiving responsibilities.[i]

    For Latina caregivers, the challenges of caregiving are compounded by additional factors that make it all the more difficult, yet even more important to save.  While many Americans struggle with long-term financial security, the wealth gap is especially pronounced for Latinas – wealth of the typical white household is 10 times that of the typical Hispanic household. Latinas earn $.55 for every dollar white, non-Hispanic men earn, and median wages for Latinas in the United States are $30,293 per year, compared to median compared to median wages of $55,470 annually for white, non-Hispanic men.[ii]  Finally, Latinas live longer on average and therefore need more retirement income.

    Saving can be difficult when it feels like your income is already being stretched too thin. But it is important to remember that you can start small, with small savings goals, and build on those savings over time. You might be surprised how quickly it can add up, which can provide additional motivation to save.  This week, WISER encourages everyone to visit American Saves (www.americasaves.org) for savings tips, tools and resources.  If you don’t have access to a retirement savings account through an employer, another great way to save is through the myRA; a savings account available through the U.S. Treasury.  There is no cost to open a myRA and there are no fees.  You can contribute any amount that fits your budget, even if it is just a few dollars at a time. Learn more about this savings option at www.myra.gov.

    For more saving and retirement planning information, and resources specifically for caregivers, check out WISER’s guide, “Financial Steps for Caregivers: What You Need to Know About Protecting Your Money and Retirement.”

    [i] The MetLife Mature Market Institute, MetLife Study of Caregiving Costs to Working Caregivers, June 2011

    [ii] U.S. Census Bureau. (2015). Current Population Survey (CPS), Annual Social and Economic (ASEC) Supplement.

    WISER

    About Us

    WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women's retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance.

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