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Half of All Americans Are Not Saving for Retirement

This article was written by in Investing. 18 comments.


In April, LIMRA, a think-tank for the financial industry, completed a survey intended to focus on the savings and investment preferences of those living and working in the United States. After receiving responses from 2,697 Americans, a representative sample of the country, LIMRA was able to determine that 49 percent of the country is not saving for retirement. Additionally, more than half of Americans between the ages of 18 and 34, at 56 percent, are not saving for retirement.

Saving for retirement — and receiving the associated tax benefits through typical investment types like 401(k) plans and IRAs — requires a public trust in the financial industry. On one side, financial planners, investment salespeople and brokers, columnists, and bloggers are encouraging the use of financial products that, through both apparent and hidden fees, enriches the industry, while on the other side, investment firms are the beneficiaries of massive taxpayer bailouts and frequently in the news for using taxpayer money for paying their executives bonuses that defy the laws of gravity.

Wall StreetIt may be true that the reason many Americans do not save for retirement is ignorance. There are typical excuses for not saving for retirement, such as the lack of good, seemingly trustworthy information about the options that are available, the lack of knowledge about the benefits of investing in 401(k) plans and IRAs, or the belief that during tight personal economic times, not a cent is available to save for the future. After the recession, however, many people just see the financial industry as unworthy of trust. Organizations like LIMRA, working for the industry and promoting financial products, are unlikely to bring this attitude to the public attention.

The industry is more interested in shaming people unwilling to get on the boats rather than analyzing the leadership capabilities and trustworthiness of the boats’ captains.

I’m saving for retirement with 401(k) plans and IRAs. When possible, I choose plans that have low fees, but the choice is not always up to me. Employees may be able to choose from a selection of investments inside their 401(k) plan, employees can’t choose their company’s 401(k) administrator and broker without a coordinated effort among a large portion of employees. That would be nearly impossible in a large company. Unions are intended to solve some of these issues, but it can often reach the point where being a member of a large union is much like working for a large employer. The power of any individual is limited.

The 401(k) is ingenious for the financial industry, particularly now that it’s automatic. In a perfect world, every single employee is enrolled in a 401(k) plan on their first day on their first job. The investments may not perform well over time, but that’s not particularly relevant for the financial industry. As long as every American is investing a portion of their paycheck every week, two weeks, month, or other period, 401(k) administrators and brokers will continue to thrive. The employee probably benefits when retirement approaches, but that is by no means guaranteed. All you need to do is look at the portion of Americans who planned to retire in recent years but saw their nest eggs trampled on during the recession.

Investors bear the responsibility for changing their risk profile as they near their planned retirement, but there is a mixed message. The financial industry says you need to stay invested in stocks (highly volatile, highly risky) as you approach retirement because most people need their funds to last several decades throughout retirement while at the same time warning people to risk only what they can afford to lose. When people receive conflicting information, making decisions becomes more difficult. And when the conflicting information is coming from the same source — that is, the financial industry — the default reaction is the lack of trust.

Does the financial industry wants to do American citizens a favor by providing options for saving for retirement? No. The financial industry wants its companies to not only stay in business but to profit as much as possible. And to that end, it sells products — investment opportunities — designed to enrich the companies and their shareholders. There’s nothing wrong with this, because consumers will only buy products they need or desire enough. Companies will sell towards that need. And when only half of Americans have discovered retirement savings vehicles like 401(k) plans and IRAs, the industry will resign itself to doing a better job in explaining to the country why their products are needs, not wants.

Saving for retirement is important. For most people, stocks are the only investment type that can grow wealth quickly enough to provide the dream retirement so impressed upon Americans through media. It’s risky, as recent would-be retirees have seen. Thanks to the cognitive dissonance resulting in the understanding that the promotion of retirement is a result of the financial industry trying to increase profits on a large scale rather than corporate concern for the well-being of a nation and the knowledge that Americans must do something drastic to save money in order to fulfill the dream of quitting work, some Americans choose to invest while others would sooner give away their firstborn rather than drink the financial industry’s Kool-Aid.

LIMRA may be right — that most people who do not invest for retirement with 401(k) plans and IRAs have not done so because the industry’s message hasn’t successfully penetrated their consciousness. That may be due in part to a lack of education, but for others, it’s a lack of faith and trust in the industry.

Photo: zoonabar
LIMRA

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The Rich and the Rest of Us

This article was written by in Society, Wealth and Affluence. 16 comments.

Dr. Cornel West is a Princeton University professor and author. Tavis Smiley is a television and radio talk show host and author as well. The two have known each other for a long time, and last year they toured the country to hear from citizens and talk about the issue of poverty in America. After their travels and discoveries, they published a new book together, The Rich and the Rest of Us.

The central concept of the pair’s appearances, including visits to news programs and public speaking, is that poverty is largely ignored as an issue. When Mitt Romney explained that he wasn’t concerned about the very poor thanks to the systemic advantages this class is afforded, Romney was speaking from the system’s perspective.

Cornel West and Tavis SmileyMoney rules politics, and only groups with significant amounts to pledge to campaigns or lobbyists can influence public policy. It’s the way our democracy is designed, and it’s not much different than when the country was founded. The primary difference is that wealthy corporations, not just wealthy individuals, have a bigger influence today. Democrats or Republicans, the power of money is the same.

Smiley and West offer an interesting statistic. They claim that one in two Americans — half of this country’s population — deals with poverty. 150 million people are in or near poverty, perhaps just one lost paycheck away from spiraling into a financial situation that could be difficult to fix. The authors are also including “new poor” in this figure, and the “new poor” are the former middle class.

I’d like to get a chance to chat with either of the authors about this concept. Is the middle class truly poor? As a group, they are certainly better off than those in abject poverty. My understanding of middle class — and I realize that there are always ways to interpret classes differently depending on one’s perspective — is that today’s middle class is generally working, earning a paycheck, and somewhat able to spend beyond the basic physiological needs like food and shelter.

On the contrary, the middle class has faced unemployment over the last few years, and for many, this has been a struggle for families. Unemployment has enabled class mobility in a negative direction, removing families from the particular designation of middle class. Families remaining in the middle class live paycheck-to-paycheck, so the loss of that consistent source of income combined with the difficulty of replacing a middle class job could lead a family into poverty. For many middle class families, debt is a way of life, and allows people to “afford” a living that appears to be like their neighbors’.

To work towards the solution of eradicating poverty in the United States, the two authors want to see President Obama or whoever receives the office after the next election set up a conference on the issue. They would like to see the government move forward with a massive job program, investment in education, and abandonment of austerity policies. This is not a solution to poverty, and I believe the authors realize this. It’s intended as a beginning, a way to keep poverty in the forefront of political discourse, and encourage smart people to get together and work on solutions to poverty.

It’s hard not to compare Smiley and West with their hero and the hero of many others in this country, Dr. Martin Luther King, Jr. The issue of poverty of worthy of as much attention as the civil rights movement received in the 1960s. Where the comparison fails is that Dr. King had the ability to foment a revolution. The public, for the most part, saw civil rights as an important issue. The time was right, with a public ready to be involved, empowered to force a change. Dr. King took his message to the streets; Smiley and West are taking their message to the streets, selling a book, and charging admission to their talks.

For poverty to become the lead story in a system that pays attention only to the issues prescribed by those with money, there needs to be an uprising, a revolution. An apathetic public without the feeling that the issue of poverty is personally relevant will not rise up. There might be a thought that the Occupy-branded protests show that the public is ready to support a major issue like civil rights was in the 1960s, but I don’t think it’s ready yet. The Occupy-branded protests are too small and too unfocused to make the necessary impact. If Smiley and West want to influence the way Americans think about poverty, they’ll need to take a page from Dr. King’s book, and do a better job of getting people to care about the issue and see the value of change.

Here’s a clip of Tavis Smily and Dr. Cornel West on Face the Nation (sorry about the advertisement first):

The pair also appeared on Stephen Colbert’s Colbert Report recently for an entertaining interview.

Photo: DC Central Kitchen

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How to Be a DIYer Without Time or Talent

This article was written by in Frugality. 11 comments.

This is a guest article by Gerri Detweiler. Gerri is the host of Talk Credit Radio and serves as Director of Consumer Education for Credit.com. She is the author or co-author of five books, including Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. Her next DIY project is to (finally!) roast coffee beans.

Mark Frauenfelder makes his own yogurt and sauerkraut. roasts coffee beans, and has raised chickens. He’s also tricked out an expresso machine and built his daughter a guitar out of a lunchbox. And he’s managed to complete all of these DIY projects — and many more — while contributing to the very popular blog BoingBoing, and serving as editor of Make Magazine. Oh, and he’s also written a book about his experiences: Made by Hand: Searching for Meaning in a Throw Away World.

My DIY projects, by contrast, are often utter failures. My homemade sauerkraut probably would have given me food poisoning if I had been dumb enough to taste the foul-smelling concoction, and the popcorn popper I bought on eBay to roast coffee beans has been sitting untouched on a shelf for a couple of years now. Oh, and my homemade yogurt tasted like the cheesecloth I used to strain it.

It would be easy to dislike Frauenfelder, except for the fact that he’s a really nice guy. So instead of getting annoyed every time he writes a post about one of his successful projects, I decided to interview him on my radio show, Talk Credit Radio, in the hopes of gleaning some wisdom that could help me become a more successful DIYer. Following are some his best tips (edited and excerpted) from that interview:

Don’t be afraid to make mistakes

Gerri: Tell me a little bit about what you learned from your DIY journey?

Mark: I think the most important thing I learned was that it’s okay to make mistakes, and that you can learn a lot from mistakes. In fact, a lot of research has shown that people learn fast when they do make errors because it really sticks in your mind.

As Editor-in-Chief of Make Magazine which is a technological project magazine, I hung around a lot of people that I call “alpha makers,” people who are just committed to anything and they do a great job of it. I found that it isn’t so much their skill level that’s important but the fact they have gotten over their fear of screwing up. And that is like the most important thing that I learned, otherwise you’re going to be frozen with fear.

I make tons of mistakes all the time but I hopefully learn from them so that every new box guitar I build is a little bit better than the one before. Then you can raise the bar and challenge yourself to try something a little better. It’s a fun way of looking at the world.

You do have time to for DIY projects

Gerri: Mark, let’s talk a little bit about the time factor. You’ve got two daughters, and a full-time job as a writer and editor. How do you fit in these DIY projects? Wouldn’t it be a lot easier to just go and buy a spoon (rather than carve one yourself)? Or go and buy espresso rather than try to figure out how to trick out your espresso machine?

Mark: Absolutely, it would be easier to go out and buy something and time is really precious, especially when you have small kids and you have to work for a living. And that is one of the reasons I wrote this book. I read all those books about going back to the land and making things yourself, they kind of assumed you lived in this ideal world, you have infinite time to do all this stuff.

So I took a much more realistic approach: What if I gave myself 15 minutes a day to get away from the computer and work on a project? And I think almost anybody can give himself 15 minutes a day. But it really adds up and after a month or so, that’s a considerable amount of hours that you’ve been able to devote making things.

There was a guy I was reading about in the 1700’s whose wife was 10 minutes late at the dinner table every minute so he took those 10 minutes to work on a novel and he ended up writing 3 very successful novels that way by squeezing in those 10 minutes. I think that’s the trick is giving yourself that time and scheduling it in.

Gerri: In your book, you talked about how when you were making your wooden spoons, you discovered that you could actually do that while you were on a conference call, for example, and concentrate better. So maybe there is some synergy between being able to accomplish other things whether to clear your mind, or find the relaxation that you need if you take on some of these projects.

Mark: Absolutely and you’ll see that with knitters. People who knit say that they are able to really have a much more pleasant conversation while they are knitting and I found that also that when I do work conference calls, if I just sit and carve a spoon it puts you in kind of a slow state or something and I’m much less fidgety and I can really concentrate one that conversation. It’s a pretty cool effect.

You can do this anywhere

Gerri: You aren’t living on a ranch in Montana or out of the woods somewhere. You’re living in a Los Angeles suburbs, is that right?

Mark: Yeah, I’m about a six-minute drive from Hollywood and Vine. So I’m right here in the city, basically up in the hills.

Gerri: You’re doing these kinds of projects in a very urban environment. Do your neighbors, do people think you’re crazy?

Mark: They’re amused by the chickens. When I had the chickens, they got out and were running around on the street and one of the people who lives on the block, he was one of the producers of The Waltons and he was, “hey this is just like The Waltons!” And he got hold of a cam and started snapping some pictures – he loved it.

It’s not always about saving money

Gerri: Some of these projects may involve specialized tools, or they may involve specialized materials. What have you found in terms of the financial payoff or the financial cost in your DIY projects?

Mark: That’s a really good question. It’s kind of a yes and no thing. No, it’s not going to save you money compared to something that you would buy. If you were to build your own television set it would cost a lot more money to buy the part than it would to buy the TV off the shelf. It’s usually cheaper to buy in almost every case.

But, if you look at making as a hobby that is really rewarding and a way to spend time, it’s going to be less expensive than going out at night and spending a lot of money at a nightclub or taking an expensive vacation or something like that. As leisure activities go, you can make it pretty inexpensive. If you wanted to become a wood carver, you could buy an improvised wood carver set under a $100 and it would give you a lifetime of enjoyment. In the end I think it’s an inexpensive and rewarding way to spend your time.

Gerri: And some projects like some of the food projects you’ve done, you may have an initial investment, like building the chicken coop or getting the yogurt maker if you decide to go the route. But it sounds like that in the long run, they can end up saving you money.

Mark: Yeah, definitely, one thing that I’ve started doing is roasting my own coffee. And there’s a way that you can do it using an air popcorn popper. There are tutorials online that show you how to do it and the cool thing is that green coffee beans, unroasted beans are a lot cheaper than roasted beans. They’re about $5 a pound that’s comparable to, comparable roasted beans would be about $15 a pound. And green beans will stay fresh for about a year or two so you can keep them by yourself, 10 pounds of beans and then roast a batch whenever you need fresh coffee and you will have the freshest coffee ever and you’ll save money.

Gerri: I really appreciate your book and recommend it. I also love your blog at boingboing.net. Can you give us more places that you recommend that anyone who’s interested in DIY should visit?

Mark: Sure, well I think makezine.com has a lot of really good recent resources that will show you how to make different projects, lots of tutorial videos that can help you get started, information about Maker’s Fair, which is our twice annual fair, that has a 100,000 attendees who come to see this giant-like science and creativity fair. It’s really fun.

And another really good website is instructibles.com and that’s where people upload instructions on things that they’ve made, all sorts of gadgets from beer coolers, built-in wagon to really neat kind of kites, all kinds of projects. I think those two right there will keep you busy for at least a couple of weeks.

Listen to or download the complete interview with Frauenfelder here: download

You can also listen to or download an interview with Consumerism Commentary’s Flexo here: download

Editor’s note: I’ve been a fan of Mark Frauenfelder since I discovered BoingBoing many years ago. He was a guest on the Consumerism Commentary Podcast, as well, in 2009.

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Do Multilingual Individuals Earn More Money?

This article was written by in Career and Work. 7 comments.

A recent article in the New York Times (linked below) synthesizes several studies about people who speak several languages fluently. I am relatively confident that the ability to converse in more than one language adds to your human capital, increasing the likelihood of earning more money over time. There are some surveys that show that bilingual individuals are valued as employees more than those who speak only one languages and are compensated accordingly, but I’m not aware of any research study that proves that learning a second language leads directly to higher income.

When a child learns to speak in a bilingual household, the brain receives more exercise in resolving internal conflicts. This is a relatively new discovery, as until recently scientists believed that a second language would cause interference and would harm children’s ability to successfully master the first language.

The benefits of learning to speak more than one languages fluently are not necessarily limited to the formative years. Adults can possibly benefit from learning a new language.

Bilingualism’s effects also extend into the twilight years. In a recent study of 44 elderly Spanish-English bilinguals, scientists led by the neuropsychologist Tamar Gollan of the University of California, San Diego, found that individuals with a higher degree of bilingualism — measured through a comparative evaluation of proficiency in each language — were more resistant than others to the onset of dementia and other symptoms of Alzheimer’s disease: the higher the degree of bilingualism, the later the age of onset.

One might take from this study the idea that those who are more resistant to brain deterioration could have more income-producing years. If bilingualism helps the brain stay competent longer, the result should be an increase in lifetime income. It has yet to be determined whether bilingualism or multilingualism can increase wealth or income by itself. According to Payscale, the data are inconclusive on this matter. There are several good signs, however, that multilingualism has the ability to open opportunities for growing wealth.

  • Speaking more than one language could present more job or career opportunities.
  • The act of multilingualism inspires the brain to do better work through improved cognitive ability and to work more efficiently.
  • Scientists claim that bilinguals are better multitaskers. I think the idea of multitasking is mostly a myth, and what we call multitasking is actually quick task-switching, but whatever the cognitive process is called, bilinguals excel.

I’m not bilingual, but I’d like to be. As a child and teen, I studied a variety of languages, including Latin, German, classical Greek, and Hebrew, but I never learned enough to be considered fluent by any stretch of the imagination. If I were to study a new language now, I wouldn’t do so with the goal of earning more money; I’m more interested in the ability to converse with more people and perhaps feel comfortable traveling.

Has speaking more than one language provided you any benefits, financial or otherwise?

NY Times

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How to Handle a Credit Card Data Breach

by Flexo

Last week, Global Payments confirmed a massive security breach involving credit and debit card numbers and information. Global Payments operates a gateway; when you use your credit or debit card to purchase an item — and this could be online or in a brick-and-mortar store — your card information is sent through Global Payments or ... Continue reading this article…

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The Best Travel Rewards Credit Cards, May 2012

by Flexo
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It’s time to plan your holiday travel. That may mean cashing in the travel rewards you’ve accumulated on credit cards — or it may mean starting to use a travel rewards credit card. Chances are you spend money on some necessities, and when you do, tailoring the rewards you receive to your travel needs could ... Continue reading this article…

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Reader Question: Resolving a Dispute With a Brokerage

by Flexo

From time to time, Consumerism Commentary readers contact me with questions. I am not an investment professional or a financial planner, and I don’t offer advice related to investing other than my general thoughts on the topic. The questions I receive range from basic investing details like government-regulated limits for investment account types to how ... Continue reading this article…

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TIAA Direct High-Yield Savings Account

by Flexo
TIAA ATM

Just when you thought the era of new online banks splashing into the market was over, TIAA-CREF is on the hunt for customers’ deposits. TIAA-CREF Trust Company, FSB was established in 1998, and the bank just began offering deposit accounts in the last month. The products, under the name TIAA Direct, are intended to compete ... Continue reading this article…

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