TIME

These Are America’s Secret Money Habits

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You'll be surprised at how we really see ourselves

Young adults spend less on groceries, but eat out more. New Yorkers are suckers for a fancy brand name, Bostonians love giving gifts and Floridians want to get money advice from Warren Buffett.

These are some of the finds in the new TD Bank Saving and Spending Survey, which uncovers some good news as well as some red flags about how Americans manage their money today.

Respondents under the age of 35 have the most financial confidence of any age bracket. They’re less likely to use the words “conservative” or “cautious” to describe their approach to saving, and they’re a full 10 percentage points more likely when compared to the overall pool of respondents to say they’re “very confident” that they’ll be able to save enough for retirement.

This apparent contradiction is because young adults are at very different points in their lives, says Nandita Bakhshi, TD Banks’ head of consumer bank. “Some are just graduating from college while others are married and starting a family. This mixed group lends itself to mixed answers.”

Bakhshi adds that because many of them are landing their first “real” post-college jobs, they’re seeing their financial circumstances shift rapidly. “Many of them… finally have extra income they can use to splurge on items they want,” she says, and they also have the ability to save a meaningful amount for the first time in their adult lives. “Seeing their savings grow, even if it is a small amount, is a big accomplishment and gives them a sense of pride and confidence,” she says.

Other recent research yields similar findings. The Bank of America/USA Today Better Money Habits Millennial Report finds that more than two-thirds of young adults have savings or save regularly each month; more than three-quarters of those who have savings goals say they meet them.

But when people were asked where they tend to overspend, millennial respondents to the TD Bank survey are most likely to say they spend too much in all categories, and more likely to say they wish they could save more.

In particular, they stand out for splurging on restaurants, even though they spend less on groceries than other age groups.

Bakhshi says this is a combination of millennials being unable to resist an option that offers greater convenience, and this demographic’s preference for doing things in groups. “Dining out is also considered to be a social event that many millennials look forward to [even if] it may stretch their budget a bit,” she says.

Both surveys find that parents and friends are a big influence on how young people manage their money. The Bank of America/USA Today survey finds that almost two-thirds of young adults say they get financial guidance from their parents, and nearly 30% get financial information from their friends.

The TD Bank survey found that a little more than half of young adults get financial advice from their parents, just over the average for respondents of all ages, but 14% say they turn to their friends — a considerably higher figure than the 8% of all respondents who say the same.

There are other differences that break down by geography rather than age. TD Bank finds that Florida residents, for instance, are much more likely to say that their ideal person to talk about financial strategy with is famous investor and Berkshire Hathaway CEO Warren Buffett.

“Florida has a high population of retirees [who]may no longer have that support system” of friends and family for financial advice, Bakhshi says.

Bostonians are the only group of respondents who say they overspend on gifts for other people, but that generosity has limits: This is also the category more Bostonians say they’d cut back on if they hit a financial tight spot.

New York City residents report higher spending on purchases like restaurant meals and tickets to sporting events, and overspending on more categories like high-end brands and coffee, than people who live in other places do.

“In many urban areas, such as New York, consumers have easy access to many things such as dining out, entertainment and clothing,” Bakhshi says. “It is hard to walk down the street without passing any of these places.”

MONEY 401(k)s

1 in 3 Older Workers Likely to Be Poor or Near Poor in Retirement

businessman reduced to begging
Eric Hood—iStock

Fewer Americans have access to a retirement plan at work. If you're one of them, here's what you can do.

A third of U.S. workers nearing retirement are destined to live in or near poverty after leaving their jobs, new research shows. One underlying cause: a sharp decline in employer-sponsored retirement plans over the past 15 years.

Just 53% of workers aged 25-64 had access to an employer-sponsored retirement savings plan in 2011, down from 61% in 1999, according to a report from Teresa Ghilarducci, professor of economics at the New School. More recent data was not available, but the downward trend has likely continued, the report finds.

This data includes both traditional pensions and 401(k)-like plans. So the falloff in access to a retirement plan is not simply the result of disappearing defined-benefit plans, though that trend remains firmly entrenched. Just 16% of workers with an employer-sponsored plan have a traditional pension as their primary retirement plan, vs. 63% with a 401(k) plan, Ghilarducci found.

Workers with access to an employer-sponsored plan are most likely to be prepared for retirement, other research shows. So the falling rate of those with access is a big deal. In 2011, 68% of the working-age U.S. population did not participate in an employer-sponsored retirement plan. The reasons ranged from not being eligible to not having a job to choosing to opt out, according to Ghilarducci’s research.

She reports that the median household net worth of couples aged 55-64 is just $325,300 and that 55% of these households will have to subsist almost entirely on Social Security benefits in retirement. The Center for Retirement Research at Boston College and the National Institute on Retirement Security, among others, have also found persistent gaps in retirement readiness. Now we see where insufficient savings and the erosion of employer-based plans is leading—poverty-level retirements for a good chunk of the population.

At the policy level, we need to encourage more employers to offer a retirement plan. On an individual level, you can fix the problem with some discipline. Even those aged 50 and older have time to change the equation by spending less, taking advantage of tax-deferred catch-up savings limits in an IRA or 401(k), and planning to stay on the job a few years longer. That may sound like tough medicine, but it’s nothing next to struggling financially throughout your retirement.

TIME

5 Money Habits of the Filthy Rich You Can Learn Now

How to save and invest your way to seven figures

Think it’s impossible to save a million bucks? It’s not. Fidelity Investments took a look at the 401(k) portfolios of its clients to see if those in the million-dollar-plus club have characteristics that make them stand out from the crowd.

Surprisingly, being super-rich wasn’t one of them. Although the average annual earnings of people with more than $1 million in their 401(k) was a substantial $359,000, Fidelity found that a number of these people had reported earnings of under $150,000.

As of the end of last year, more than 72,000 Fidelity clients had 401(k)s with more than $1 million in them — that’s more than double the number who had reached that monetary milestone just two years ago. Sure, investors across the board have benefitted from the stock market’s recovery, but the most retirement-ready people also displayed some specific saving and investing habits that helped them reach their goals.

They go slow and steady. “They really took a long term approach… took most of their careers to get there,” says Fidelity retirement expert Jeanne Thompson. The average age of Fidelity’s 401(k) millionaires is just under 60, and have been in the workforce for 30 years. It’s also worth noting that many of the people with the healthiest nest eggs also started saving for retirement early. “It’s not like it happened overnight,” Thompson says.

They max out their contributions. Fidelity found that million-dollar investors contribute roughly 14% of their income towards their 401(k)s — $21,4000 a year, on average. Now, this is above the annual amount workers under 50 are allowed to contribute — those workers are capped at contributing $18,000 a year in 2015 — but the average age of Fidelity’s million-plus 401(k) clients skews about 10 years higher than that. In other words, the most aggressive retirement savers seem to ramp up their contributions once they get the legal go-ahead to sock away more. By contrast, those with portfolios under $1 million contribute only $6,050 a year.

They don’t rely on target date funds. Target date funds have been pitched as a kind of “set it and forget it” option for investors, but a peek into the portfolios of the people who accrued $1 million or more shows that they don’t rely on them entirely or even primarily. As of the end of 2014, about 40% of these investors’ portfolios is in domestic equities, another 12% is in company stock and 6% is in foreign equities, on average. Only 10% of the average portfolio is allotted to target date funds.

They stay in equities. “To some extent, if you’re invested in cash you’re only going to have what you put in,” Thompson says. “Many people may be in retirement for 30 years or more,” she points out, so people might want to reevaluate if or when switching to a more conservative allocation is right for them. “As people are working longer and living longer, many will hold higher equity allocations,” she says. “You still have 30 years your money has to last…If you go too conservative too early you might not keep up with inflation.” On average, about three-quarters of the holdings of millionaire 401(k) clients are in equities — and remember, these are investors with an average age of around 60.

They don’t panic. “The key is when the markets go down not to panic,” Thompson says. Although it can be scary watching those numbers go down, selling at a loss only makes it harder to recover when the market eventually recovers. “They did bounce back, and so they’re were able, as equities rose, to ride the upswing,” Thompson says.

MONEY Savings

5 Signs You Will Become a Millionaire

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Martin Barraud—Getty Images

A million isn't what it used to be. But it's not bad, and here's how you get there.

A million bucks isn’t what it used to be. When your father, or maybe you, set that savings goal in 1980 it was like shooting for $3 million today. Still, millionaire status is nothing to sniff at—and new research suggests that a broad swath of millennials and Gen-Xers are on the right track.

The “emerging affluent” class, as defined in the latest Fidelity Millionaire Outlook study, has many of the same habits and traits as today’s millionaires and multimillionaires. You are in this class if you are 21 to 49 years of age with at least $100,000 of annual household income and $50,000 to $250,000 in investable assets. Fidelity found this group has five key points in common with today’s millionaires:

  • Lucrative career: The emerging affluent are largely pursuing careers in information technology, finance and accounting—much like many of today’s millionaires did years ago. They may be at a low level now, but they have time to climb the corporate ladder.
  • High income: The median household income of this emerging class is $125,000, more than double the median U.S. household income. That suggests they have more room to save now and are on track to earn and save even more.
  • Self-starters: Eight in 10 among the emerging affluent have built assets on their own, or added to those they inherited, which is also true of millionaires and multimillionaires.
  • Long-term focus: Three in four among the emerging affluent have a long-term approach to investments. Like the more established wealthy, this group stays with its investment regimen through all markets rather than try to time the market for short-term gains.
  • Appropriate aggressiveness: Similar to multimillionaires, the emerging affluent display a willingness to invest in riskier, high-growth assets for superior long-term returns.

Becoming a millionaire shouldn’t be difficult for millennials. All it takes is discipline and an early start. If you begin with $10,000 at age 25 and save $5,500 a year in an IRA that grows 6% a year, you will have $1 million at age 65. If you save in a 401(k) plan that matches half your contributions, you’ll amass nearly $1.5 million. That’s with no inheritance or other savings. Such sums may sound big to a young adult making little money. But if they save just $3,000 a year for seven years and then boost it to $7,500 a year, they will reach $1 million by age 65.

An emerging affluent who already has up to $250,000 and a big income can do this without breaking a sweat. They should be shooting far higher—to at least $3 million by 2050, just to keep pace with what $1 million buys today (assuming 3% annual inflation). But they will need $6 million in 2050 to have the purchasing power of $1 million back in 1980, when your father could rightly claim that a million dollars would make him rich.

Read next: What’s Your Best Path to $1 Million?

TIME

Why You Won’t Be Splurging This April

We're getting responsible about that "free money" from Uncle Sam

About 80% of Americans who filed taxes got back a refund last year, averaging just under $2,800. Usually, even though it’s our money to begin with, we treat it kind of like a windfall, buying appliances, going on vacation or spending it in other fun ways.

That’s not happening this year.

According to an annual National Retail Federation survey, nearly half of Americans who plan to get a refund say they’re going to be socking part of all of it away into savings — the highest percentage ever recorded. About 40% say they’re going to pay down debt with part of all of their refund, a three-year high. Perhaps surprisingly, it’s young adults leading the charge, with 55% of those under 24 years old planning to save their refund money, the highest percentage of any age bracket.

About 13% of respondents do say they’ll use the money on a vacation, which is a high not seen since 2007’s tax season, before the recession hit. Only about 10% say they’re making a big purchase like a TV or a fridge, a slightly smaller number than last year and the lowest percentage in the survey’s history. About the same number say they’ll splurge on things like dinners out, spa treatments and new clothes.

“Americans are thinking of the future, and remaining financially secure is a big part of that,” NRF president and CEO Matthew Shay said in a release. Getting our hands on those refund checks is another part — when the survey was conducted in early February, almost a quarter of people said they’d already filed their taxes (although 15% are procrastinators who admit they’ll wait until April).

The good news, relatively speaking, is that fewer Americans are relying on their tax refunds to pay for everyday expenses. It’s still about a quarter of survey respondents, but that’s better than the 30% who said they needed that money for everyday expenses just two years ago.

Even with this year’s intention to be diligent about our tax refunds, though, Americans aren’t nearly out of the woods when it comes to the security of their savings accounts. A Bankrate.com survey published this week finds that nearly one in four Americans have more credit card debt than they do money in savings, while another 13% have no credit card debt, but no savings, either. Fewer than 60% have more savings than credit card debt, a situation Bankrate chief financial analyst Greg McBride describes in a release as “teetering on the edge of financial disaster.”

MONEY Kids and Money

The High School Class That Makes People Richer

Graduates with $$ on their caps
Mark Scott—Getty Images

Kids really do benefit from learning about money in school, new data show

Most experts believe students who study personal finance in school learn valuable money management concepts. Less clear is how much they retain into adulthood and whether studying things like budgets and saving changes behavior for the better.

But evidence that financial education works is beginning to surface. Researchers at the Center for Financial Security at the University of Wisconsin recently found a direct tie between personal finance classes in high school and higher credit scores as young adults. Now, national results from a high school “budget challenge” further build the case.

Researchers surveyed more than 25,000 high school students that participated in a nine-week Budget Challenge Simulation contest last fall and found the students made remarkable strides in financial awareness. After the contest:

  • 92% said learning about money management was very important and 80% wanted to learn more
  • 92% said they were more likely to check their account balance before writing a check
  • 89% said they were more confident and 91% said they were more aware of money pitfalls and mistakes
  • 87% said they were better able to avoid bank and credit card fees
  • 84% said they were better able to understand fine print and 79% said they were better able to compare financial products
  • 78% said they learned money management methods that worked best for them
  • 53% said they were rethinking their college major or career choice with an eye toward higher pay

These figures represent a vast improvement over attitudes about money before the contest, which H&R Block sponsored and individual teachers led in connection with a class. For example, among those surveyed before and after the contest, those who said learning about money was very important jumped to 92% from 81% and those who said having a budget was very important jumped to 84% from 71%. Those who said they should spend at least 45 minutes a month on their finances jumped to 44% from 31%.

The budget challenge simulates life decisions around insurance, retirement saving, household budgets, income, rent, cable packages, student loans, cell phones, and bank accounts. Teachers like it because it is experiential learning wrapped around a game with prizes. Every decision reshapes a student’s simulated financial picture and leads to more decision points, like when to a pay a bill in full or pay only the minimum to avoid fees while waiting for the next paycheck.

Block is giving away $3 million in scholarships and classroom grants to winners. The first round of awards totaling $1.4 million went out the door in January.

The new data fall short of proving that financial education leads to behavior improvement and smarter decisions as adults, and such proof is sorely needed if schools to are to hop on board with programs like this in a meaningful way. Yet the results clearly point to long-term benefits.

Once a student—no matter what age, including adults—learns that fine print is important and bank fees add up she is likely to be on the lookout the rest of her life. Once a student chooses to keep learning about money management he usually does. Added confidence only helps. Once students develop habits that work well for them and understand pitfalls and mistakes, they are likely to keep searching for what works and what protects them even as the world changes and their finances grow more complex. Slowly, skeptics about individuals’ ability to learn and sort out money issues for themselves are being discredited. But we have a long way to go.

 

MONEY Personal Finance

Turns Out (Gasp) Millennials Do Want to Own Cars

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Jamie Grill—Getty Images

Young adults want to share everything--except maybe their car

Millennials have spurred the rise of the sharing economy by embracing the notion that renting is almost always better than buying. But even they want to own their own set of wheels, new research shows. Could homeownership, a diamond ring and other traditional purchases be far behind?

Some 71% of young adults would rather buy a car than lease one and 43% are likely to purchase a vehicle in the next five years, according to a survey from Elite Daily, a social site, and research consultants Millennial Branding. This finding suggests young adults that have popularized car-sharing options like Zipcar and RelayRides—and all sorts of other sharing options from wedding dresses to leftover meals—may be warming to traditional ownership.

Could it be that the kids are growing up and want something of their own? Other research shows that millennials, widely regarded as an idealist generation that favors flexibility and personal fulfillment over wealth, have begun backtracking there as well. Increasingly, they link financial health to life satisfaction.

For now, though, home ownership remains largely off their radar: 59% would rather rent a house than buy one and only one in four millennials are likely to purchase a house in the next five years, the survey found. “This shows that millennials don’t know anything about investing, even though they say they do,” says Dan Schawbel, managing partner at Millennial Branding. “A home is a much better investment than a car.”

Schawbel believes millennials are more eager to buy cars because they are delaying marriage and children, and they don’t want to be tied down with real estate. Plenty of research supports that view—and the trend toward delayed family formation. Yet it seems only a matter of time before this generation embraces marriage and homeownership too. The oldest are just 35 and, the survey found, three in five can’t afford to buy a home anyway.

The survey also found that millennials might be struggling less with student debt than is widely believed. Yes, student debt now tops $1.3 trillion. But young adults have money to spend. They are using their income to pay off their loans and getting support from their parents to pay for other things, Schawbel says. That may mean a car now or in the near future, and it seems increasingly clear that eventually it will include real estate. This generation is carving its own path, for sure. But the path may wind up looking more traditional than they know.

MONEY Financial Planning

5 Simple Questions that Pave the Way to Financial Security

Analyzing 20 years of data, the St. Louis Fed found that five healthy financial habits are the key to future wealth.

Want to know how your bank account stacks up against that of your neighbors? You’ll get an idea by asking yourself five simple questions, new research shows.

The St. Louis Fed examined data from the Federal Reserve’s Survey of Consumer Finances between 1992 and 2013 and found a high correlation between healthy financial habits and net worth. In the surveys, the Fed asked:

  • Did you save any money last year? Saving is good, of course. Just over half in the survey earned more than they spent (not counting investments and purchases of durable goods).
  • Did you miss any credit card or other payments last year? Missing a payment isn’t just a sign of financial stress; it may trigger late fees and additional interest. An encouraging 84% in the survey made timely payments.
  • After your last credit card payment, did you still owe anything? Carrying a balance costs money. In the survey, 44% said they carried a balance or recently had been denied credit.
  • Looking at all your assets, from real estate to jewelry, is more than 10% in bonds, cash or other easily sold, liquid assets? If you don’t have safe assets to sell in an emergency, you are financially vulnerable. Just over a quarter of those in the surveys have what amounts to an emergency fund.
  • Is your total debt service each month less than 40% of household income? This is a widely accepted threshold. A higher percentage likely means you are having trouble saving for retirement, emergencies, and large expenses.

The average score on the 5 questions was 3, meaning that the typical respondent—perhaps your neighbor—had healthy financial habits 60% of the time. That equated to a median net worth of $100,000. Those who scored higher had a higher net worth, and those who scored lower had a lower net worth.

In general, younger people and minorities scored lowest, while older people and whites scored highest. Education was far less relevant than age. “This may be due to learning better financial habits over time, getting beyond the financial challenges of early and middle adulthood and the benefit of time in building a nest egg,” the authors wrote.

It should come as no surprise that healthy financial habits lead to greater net worth over time. But the survey suggests a staggering advantage for those who ace all five questions. One of the lowest scoring groups averaged 2.63 out of 5, which equated to median net worth of $25,199. One of the highest scoring groups averaged 3.79 out of 5, which equated to a median net worth of $824,348. So these five questions not only give you an idea where your neighbors may stand—they pretty much show you a five-step plan to financial security.

TIME

5 Surefire Ways to Get Better Credit in 2015

You owe it to yourself to do these

Along with the New Year’s Resolutions about losing weight and learning a new language, plenty of Americans will be contemplating how to improve their credit in 2015.

Whether you’re trying to get a better credit score so you can qualify for a mortgage or a low rate on a car loan, are just starting to build your credit history or repairing it after a financial setback, experts say there are a handful of things you should be doing right now.

Consider a balance transfer. “January is the start of balance transfer season, [when] credit card issuers try to lure new customers with 0% APR promotional offers,” says Charles Tran, founder of the site CreditDonkey.com. While balance transfers can help people pay down a high debt load, you really need to read the fine print, Tran says. “Pay attention to the balance transfer fee and how long the promotional period is for,” he advises. Another thing you want to check is whether or not the promotional rate applies to new purchases or only to the balance you transferred onto the card. “Watch out, as a balance on the card will typically mean there is no grace period for purchases,” Tran warns.

Avoid applying for more. Applying for a credit card or loan dings your credit score just a bit, so if you’re planning a big purchase (say, a home or a car) where every point on your credit score counts, hold off on opening any other accounts for a while, says Odysseas Papadimitriou, founder and CEO of the sites CardHub.com and WalletHub.com. “Stop applying for other forms of credit at least six months in advance,” he advises.

Pay down any variable-rate debts. “It’s important to cut down your overall debt level as interest rates are predicted to rise,” Tran advises. Most credit cards these days are variable-rate cards with APRs linked to the prime rate, and right now the prime rate is unusually low. It literally has nowhere to go but up, which means more Americans will find themselves paying more to service their debts. For people who are already strapped, this could hurt their credit if they can’t make those higher monthly payments.

Check your credit reports. This is also especially important if you plan to buy a car or house this year, says Matt Schulz, senior industry analyst at the site CreditCards.com. “Check for errors such as accounts that you don’t recognize and late payments that you didn’t actually pay late,” he says. “Cleaning up any mistakes on your report can make a big difference to your credit score.”

Build a cash cushion. You might think your paycheck is already stretched thin, but experts say it’s important to sock away money in a savings account that you can access if you have an unexpected expense or interruption in your income stream. Without an emergency fund to tap, even a small shock to your finances could knock you into an expensive and long-lasting spiral of debt. “Do not get into additional debt without first having an emergency fund,” Papadimitriou warns.

MONEY Debt

Why Paying Off Those Holiday Gifts May Be Harder Than You Think

man with ball & chain attached to leg
Ingram Publishing—Alamy

More than a third of Americans have already gone into debt for the holidays, and many will find it more difficult to repay than they imagine.

As the holidays fast approach, 38% of Americans have already gone into debt for gifts, new research shows. Many will be shocked at how long it takes for them to pay all they owe.

In general, consumers do not expect their seasonal spending to set them back for long. More than half say they will pay for the spending spree by the end of January, and three quarters expect to be free from holiday debt by the end of March, according to a survey from CreditCards.com.

Nearly 1 in 5 Americans with debt say they will never be debt free.Just 5% worry that they will still be paying for this year’s holidays a year from now. That seems optimistic. Some 7% of consumers entered this season with unpaid debts from last year, according to a blog from the Center for Retirement for Retirement Research. (The figures were even higher in previous years.)

The survey further reveals how misplaced this optimism may be. Nearly one in five Americans with debt say they will never be debt free. That is double the rate of those who felt the same way in a survey last May. So as the economy has turned up in recent months, it seems debt spending has followed suit—accompanied by escalating angst over the debt hole consumers may be digging.

The typical consumer expects to be completely debt free, including a fully paid mortgage, by age 53, the survey found. Yet nearly half worry they will still owe at age 61, and 18% believe they will have debts when they die.

On cue, millennials are the most optimistic generation: Just 16% of those aged 18 to 29 with debt say they will never get out of debt, compared with 31% of those aged 65 and older and 22% of those between the ages of 50 and 64. Meanwhile, high-income households (those earning more than $75,000 a year) are only slightly more optimistic about paying off holiday debt than low-income households, suggesting that everyone is letting go a bit and testing the limits of their earning power.

America’s debt culture is a big contributor to the retirement savings crisis. Other studies show an increasing debt burden on seniors. Those past the age of 60 saw their average debt jump between 2005 and 2014, TransUnion reported. More seniors are carrying student debt all the way into retirement, a government report found.

Today’s spending may have far reaching consequences. To keep spending under control this season, create a holiday budget and stick to it. Track everything you spend. Pay off your highest interest rate cards first and consider transferring balances to a lower rate card. You might be able to negotiate a lower rate if you call your credit card company.

Read more on managing credit and debt in Money 101:
How Do I Get Rid of My Credit Card Debt?
Which Debts Should I Pay Off First?
How Can I Improve My Credit Score?

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