Retirement Policy: DOL Interested in Role of Smartphone Apps Aimed at Financial, Retirement Literacy

By Florence Olsen

The Department of Labor has been exploring ideas for using smartphone applications to influence the savings habits of young people, according to a DOL official who spoke at a retirement policy event July 12 at which the official asked college students whether information technology could be used to improve financial literacy.

“I’m curious, is that a part of the solution?” said Michael L. Davis, deputy assistant secretary of DOL’s Employee Benefits Security Administration.

Virginia Tech student Matt Maranowski answered that smartphone applications are “a step in the right direction,” especially the types of apps that many banks provide for making deposits and tracking savings and checking account balances.

“The apps are extremely fast. You swipe your card, and it’s in the app about five minutes later,” Maranowski said.

Significant Cultural Shifts

College students generally are uninterested in reading paper statements that banks send out monthly, Maranowski said. “There’s no point in checking because a monthly statement is so far behind where you’re actually at,” he said.

Other Virginia Tech students offered similar ideas, and Davis responded by saying their comments reflect “some pretty significant cultural shifts.

Maranowski also suggested to Davis that advertising similar to recent anti-smoking campaigns might get college students to pay attention to the need to start saving for retirement now.

“Something similar to that in regard to retirement savings could show the realities of someone who doesn’t save for retirement and what their situation looks like,” Maranowski said. It could be a 30-second commercial showing “what a day is like for someone who has no retirement savings and is living on nothing,” he said.

“Our generation is so used to very upfront, in-your-face, action-packed stuff, so I think hitting them with the harsh reality of what it’s like is something that could really shock people into thinking, ‘Well maybe this is more important than I’m willing to believe,’ ” Maranowski said.

DOL Takeaways

Davis commended Maranowski and his fellow students who were invited to speak at the event as winners of an essay competition sponsored by the financial literacy organization iOME Challenge.

“I’m taking some things away from this conversation that we’re going to talk about in the office,” Davis said.

The event was sponsored by the Women’s Institute for a Secure Retirement.

Students shedding credit cards as recession, new law sink in

By Martin Merzer

The nation’s college students finally may be absorbing a lesson that won’t count toward class credit but will improve their life skills — how to responsibly handle credit cards.

A national study from Sallie Mae finds that credit card ownership by college students has dropped during the past two years and that one-third of the surveyed college students carried no monthly balance on their cards. Those students paid off their credit card debt as it occurred, sometimes with parental assistance — but not always.

“I think it is good for students, their families and their long-term financial health,” said Jim Hawkins, an assistant professor at the University of Houston Law Center who has closely studied the nexus between college students and credit cards.

“Not only are students avoiding the debt they can rack up by opening a credit card in college, they are learning other budgeting techniques and payment patterns that can help them avoid the seduction of over-indebtedness in the future,” Hawkins said.

Adi Redzic, 25, a member of the college-age millennial generation and managing director of the iOme Challenge, an annual college competition intended to enhance retirement planning and financial literacy on campus, called the results encouraging.

Many factors apparently are involved, he said, but the student provisions of the Credit CARD Act of 2009, which seek to diminish student indebtedness, appear to be having an impact.

“This is showcasing great progress in behavioral change among college students and I feel very excited about it,” Redzic said. “But there’s much work left to do.”

Cards, no, student loans, yes
Evidence of one remaining challenge came July 20, with release by federal officials of another study, “Private Student Loans,” a report measuring the mammoth mountain of debt still confronting college students and their parents. The Consumer Financial Protection Bureau and the U.S. Department of Education reported that student loan debt in the United States exceeded $1 trillion in 2011.

About 15 percent of that debt — $150 billion — came as a result of private student loans, granted outside the federal government’s student loan program. Such private loans often lack the payment flexibility, fixed interest rates and other protections provided by the federal program. The situation reminds experts of the recent mortgage and foreclosure crises.

“Subprime-style lending went to college and now students are paying the price,” U.S. Education Secretary Arne Duncan said in a statement. “We still have some work to do to ensure that students who take out private student loans have the same kinds of protections offered by federal loans. In the meantime, if you have to take out a loan to pay for college, federal student aid should be your first option.”

Credit card ownership falls
Returning to the college student credit card report, those conducting the survey found that 35 percent of college undergraduate owned a credit card in 2012, down from 40 percent in 2011 and 42 percent in 2010 (see chart, “Credit card ownership by grade level“). The study was conducted for Sallie Mae, the leading college student loan company, by Ipsos Public Affairs, a market research firm.

Other college-related findings:

• Thirty-three percent of students carried a zero balance on their cards and a plurality (41 percent) carried balances under $500. Only 3 percent shouldered balances greater than $4,000.
• Students from higher income families were more likely to carry cards (53 percent) than students from middle income (31 percent) and low income (29 percent) families.
• The average student made a payment of $81 per month toward his or her credit card bill; the average parent paid $106 per month toward the student’s credit card bill.
• As has been the case in recent years, freshmen were least likely to carry a card (21 percent in 2012), with card ownership rising steadily as students moved toward their senior year, when 60 percent carried cards.
• Neither students nor their parents were likely to use credit cards for tuition or the other fundamental costs of a college education. Even when all costs of a college education were considered, credit card use tended to be modest. The average parents put about 1 percent of the family’s college costs on credit cards; the average student puts even less than that on his or her cards.
• Still, as expected, some economically struggling families reached for their cards when college bills came due. About 4 percent of the parents reported using credit cards to pay significant college bills, with an average of $4,911 in debt.
• Debit card ownership is far more prevalent among college students than credit card ownership. Nearly one out of every five college students carry a debit card, which works as a pay-as-you-go, immediate-cash-out-the-door card.

When taken together, the statistics suggest a growing regard among college students and their parents for thoughtful cash versus credit management and responsible use of credit cards.

“College students, and young people as a whole, may be impulsive, but not necessarily thoughtless,” Redzic said. “The key is in education and understanding. Once we understood the implications of irresponsible credit card use, we naturally diverted from using them and, if we did use them, we made the effort to pay bills on time and use them in a responsible manner.”

He and other experts point to the CARD Act, which attempts to sharply curtail the distribution of credit cards to college students and requires them to demonstrate that they have sufficient income to repay their debts or have a co-signer for the cards.

“I would equate credit card ownership to a buffet meal — if it is in front of me, the temptation is too difficult to pass,” Redzic said. “The CARD Act of 2009 has removed the frequency of this temptation, thus certainly impacting students’ impulsiveness.”

But the act does not totally prohibit credit card issuers from focusing their marketing efforts on college students, and many firms are still active on campus.

Credit still seductive
Hawkins conducted a survey of 500 students at the University of Houston and Baylor University in Waco, Texas, and found that many were being seduced by credit card offers that showed up in their mail boxes, by promotional gifts and by policies that allowed them to include college loans as part of the income they cited to qualify for a card.

“It is hard to disentangle the effects of the CARD Act with other factors that could cause decreases in credit card use, such as changing attitudes to credit, the rise of the popularity of other payment devices like debit cards, and the constriction of credit generally because of the recession,” Hawkins said.

“Based on my own research, it appears the CARD Act is having some effect on students’ reports of credit card marketing, but it is hard, without more data, to say how much each factor is contributing,” he said.

The latest survey from Sallie Mae and Ipsos was conducted by telephone between April 2 and May 13, 2012. It involved interviews with 801 undergraduate students, ages 18 to 24, and 800 parents of undergrads. The margin of error was plus or minus 2.5 percentage points.

Students paying more, making choices
The survey also found students are bearing more of their own tuition bills, using savings, income and loans to handle 30 percent of that cost compared to 24 percent four years ago. In addition, incessantly rising tuition costs are having a major impact: Sixty-nine percent of the surveyed families reported crossing some college choices off their lists due to their high costs.

Returning to the use of cards by students and their parents, the much higher percentage of debit cards on campus than credit cards caught the eye of many experts, though the causes and implications were not entirely clear.

“It is definitely a positive sign that students are using debit cards instead of credit cards because, while debit cards are not as good as cash, they have a greater tendency to promote fiscal discipline than credit cards,” Hawkins said.

Speaking on behalf of his counterparts in the millennial generation and as one who has studied their financial attitudes, Redzic saw other factors at work.

“I am not sure that students deliberately choose debit over credit card ownership from the get-go because they prefer to pay cash out of pocket right away or because they view it as more responsible,” he said. “Rather, I think that because debit cards come with the first checking account a student opens, their greater ownership and usage is probably more related to the habit and convenience — and logic, if you will — than anything else.”

Regardless of that, Redzic likes the trend. “One may argue that instead of purely impulsive — wanting it here and now — we have become thoughtfully or responsibly impulsive,” he said.

Financial writer Martin Merzer has a particular interest in on-campus financial literacy and serves as a judge of the annual collegiate iOme Challenge.

“Millennials” Doubt the Future of Social Security

“Measure of Millennials,” a new study released by the iOMe Challenge organization, shows that 50% of Millennials do not believe that Social Security will exist when they reach their retirement years.

The study of a representative sample of 642 18-29 year-olds across the U.S. was conducted in August by the St. Norbert College Strategic Research Institute. In addition to the 50% who do not think Social Security will exist, 28% of Millennials think that Social Security will exist, but that the benefits will be much smaller than today. Only 5% think Social Security will exist at the same benefit level as today, and 18% are not sure what will happen with Social Security by the time they retire.

“When the views of Millennials on the future of social security are juxtaposed with employers’ shift from a defined benefit retirement to a defined-contribution model, it is clear that for Millennials, financing their retirement is going to rest far more on their individual shoulders,” said David Wegge, chair of the iOMe Challenge and executive director of the St. Norbert College Strategic Research Institute.

The survey also indicates, however, that Millennials are finding it a challenge to save at higher levels. Forty-two percent report they are setting aside some money for retirement each month, but the median amount is under $75.  More than half (52 percent) say they have not given any thought to how they will finance their retirement because they are focused more on meeting their current financial obligations.

According to Wegge, “There has never been a more important time to engage Millennials in helping to solve the financial challenges we face in the U.S. and the potential problems they may face in their retirement years.”

The iOMe Challenge organization was formed by a group of concerned citizens, business leaders and academicians to engage and challenge young people to begin thinking about their financial future.  Sponsors include: Ally, PAi, Sage, American Society of Pension Professionals & Actuaries, the National Association of Government Defined Administrators and St. Norbert College.

An executive summary of other results of the “Measure of Millennials” survey can be found at: http://bit.ly/nG5kWo.

David Wegge, Chair, iOMe Challenge and Executive Director of the Strategic Research Institute at St. Norbert College, is available for interviews upon request. Contact Wegge at 920-403-3960 or dave.wegge@snc.edu

 Link to the original article.

Half of Millennials don’t think they will get Social Security

Grandma and Grandpa may be getting a Social Security raise, but half of their grandkids are pretty sure they won’t see any Social Security at all.

That’s according to a new poll from the Strategic Research Institute at St. Norbert College in De Pere, Wis. It’s working with several other organizations on the iOMe Challenge, which seeks to help young people think about their financial future.

Apparently, they don’t think there’s much future there at all, at least when it comes to Social Security.

The online survey, which included a nationally representative sample of 642 18- to 29-year-olds, found only 5 percent expect that the Social Security benefits they stand to receive at age 67 to be about the same as the ones retirees are receiving today.

In addition to the 50 percent who don’t think it will exist at all, another 28 percent thought it would exist but the benefits would be much smaller. Eighteen percent weren’t sure what would happen.

Social Security is at risk of running short of funds unless some changes are made, because the general population is both aging and living longer. Proposals include raising the Social Security tax cap, increasing the age at which you start collecting Social Security and reducing benefits.

David Wegge, executive director of the Strategic Research Institute, noted that no matter what happens with Social Security, millennials will likely have to rely more on their own savings than previous generations. That’s because pensions also are becoming much less common.

“There’s much more responsibility that’s being placed on an individual’s shoulder,” Wegge said.

The survey found that about four in 10 millennials are setting aside some money for retirement each month. The ones who don’t think Social Security will be there when they retire were also the least likely to be currently saving for retirement.

Even those who are setting money aside are generally not saving very much.

That’s not surprising given the current economy. The unemployment rate for 25- to 34-year-olds was at 9.7 percent in September, according to the Bureau of Labor Statistics. For 20- to 24-year-olds, it was 14.7 percent.

Even those who have jobs may not have much left over at the end of the month. In general, younger workers tend to earn lower wages because they are just starting out, and that may be especially true right now.

In addition, Wegge noted, many younger workers may be trying to pay off student loans.

“I think that generation is coming into the workforce at a very challenging time,” he said.

 Link to the original article.

Millennials See Social Security as Doomed, Aren’t Saving, Either

By Danielle Andrus, AdvisorOne

Half of millennials do not believe Social Security will still exist when they are ready to retire, a survey released Wednesday by the iOMe Challenge and conducted by the St. Norbert College Strategic Research Institute found. Over one-quarter of millennials believe Social Security will still exist, but they will receive smaller benefits.

The report found that the traditional three-legged stool so many of today’s retirees depended on would be reduced to one primary leg, that of personal savings and investments.

“When the views of Millennials on the future of Social Security are juxtaposed with employers’ shift from a defined-benefit retirement to a defined-contribution model, it is clear that for Millennials, financing their retirement is going to rest far more on their individual shoulders,” David Wegge, chair of the iOMe Challenge and executive director of the St. Norbert College Strategic Research Institute, said in a statement.

Despite this outlook, those who do not think they will be able to rely on Social Security are the least likely to save. Just 40% of those who said they don’t think Social Security will last until they retire are saving for their retirement, while 48% of their slightly more optimistic counterparts are saving. Of the 5% of millennials who say Social Security will still be around and paying out benefits at the same level, 55% are setting some money aside for their retirement.

“It may be that these individuals are simply more optimistic and also more concerned about their personal future, so they are simply going to do everything they can to be assured of reasonable financial security in retirement,” Wegge told AdvisorOne.

Unfortunately, millennials find it challenging to save overall, the survey found. Less than half are setting money aside each month and the median amount saved is just $75. Most millennials are only saving between $25 and $50. Fifty-two percent of millennials say they haven’t given any thought to how they will finance their retirement because they are focused on meeting current financial obligations.

Women and Republicans are more pessimistic than men and Democrats about the availability of Social Security at retirement. Fifty-five percent of women say they’ll retire without any help from Social Security compared with 44% of men. Sixty percent of Republicans agreed that Social Security will disappear compared with 45% of Democrats.

At work, millennials are still pessimistic. Over half of millennials working full-time say Social Security will run out by the time they need it; 47% of part-time workers and 48% of unemployed millennials agreed. While 53% of millennials who work full-time say Social Security will not exist, 57% say that their employer provides some retirement benefits. Forty-four percent of those employed full-time say they are investing and saving in addition to their employer’s assistance.

The survey was conducted online in August 2011 among 642 18-29-year-olds. The iOMe Challenge organization was formed by a group of concerned citizens, business leaders and academicians to engage and challenge young people to begin thinking about their financial future. It is sponsored by Ally, PAi, Sage, American Society of Pension Professionals & Actuaries, the National Association of Government Defined Administrators and St. Norbert College.

 Link to the original article.

Teams Complete and Submit iOme Challenge Videos

After hearing about the challenge in Oliveria’s class last year, junior Eli Karttunen differed the opportunity one year and upon hearing the announcement for the challenge in class this year Karttunen couldn’t resist getting involved.  He chose to compete this year because he saw the challenge as an opportunity to learn more about policy making and offer solutions.  Karttunen noted, “To see other students taking on significant real world problems that will face our generation and coming up with real solutions is inspiring that one day the issues we face today will be corrected through innovative thinking and proactive policy formation.”

Oliveira knows the significance of this project will be beneficial to the students who participate by exposing them to the policy making process.  Oliveira notes, “Fixing the savings rate crisis in America will take a highly concerted effort and will likely require people to make behavioral adjustments that may cause minor discomfort in order to promote a long run sustainable savings scheme.” This challenge is important and necessary because the more people know about a problem, the more likely it is to get corrected.

 Link to the original article.