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couple discussing financesIn July 2014, the Federal Reserve released the results of a survey that discussed 6 financial areas in an American household. In the previous article, we discussed the two areas where American consumer habits seem to be improving – housing and saving. Our financial behavior should be monitored closely because there are certain habits that will make you a financial failure – just like there are those that will make you a financial success.

In this article, we will be discussing the remaining 4 financial areas that unfortunately, did not improve in 2013.

What needs to be improved in our financial behavior?

According to the survey results published on FederalReserve.gov, the remaining 4 financial areas include credit availability, college finances, retirement and medical expenses. Here are the data derived from the survey and home Americans implemented the necessary consumer habits on each.

Credit availability

Based on the data from the Federal Reserve survey, the general availability of credit is low in 2013. 31% applied for new credit in the past year. 1 out of 3 of those who applied were turned down or were only approved to borrow a lesser amount of money. Almost 2 out of 10 Americans postponed getting new credit because they knew that they will not be approved. But despite this, more than half of the respondents said that they believe they will be approved of a mortgage loan.

These data gives us a hint of the credit report of Americans today. If 1 out of 10 Americans were turned down or had their credit amount lowered, that means they did not have the best credit score in 2013. This needs to be improved by implementing better consumer habits especially when it comes to credit management.

College finances

Student loans continue to be a growing problem for a lot us. It is actually a sad fate for a lot of youngsters who are honestly unaware of the repercussions of this type of debt. How can the next generation do any better when they are getting out of college with so much debt? While this debt is crippling a lot of young adults, many still believe in getting a college education.

According to the data found on the Federal Reserve survey, the borrowing of student loans depend on the education that that student wishes to have. 24% of the survey respondents said that they have college debts of some kind (whether it is for them or for someone else). 16% said they applied for student loans to finance their own education. Those who are in debt have an average of $27,840 – with the median being $15,000. 18% of those who got the loan for their own education admitted that they were behind on their payments. Some of them even have debts in collection already.

The survey also revealed that 54% of the student loan borrowers who failed to complete their program had to cut back on their spending. 56% of those who did not finish their program also said that the financial gain from the education is not enough to outweigh the money they borrowed to finance the said program.

At this point, this financial area is still something that we need to work out. We cannot afford not to act on this because this particular problem can really cripple our nation’s financial future. The direct consumer habits that we need to implement are not yet defined but among the things that we can work on right now includes budgeting and a stronger campaign to educate high school students and younger about personal finance.

Retirement

The general findings from the survey about retirement is not too promising. Overall, a lot of Americans have reported that retirement is one of the financial areas that they are not prepared for. Half of the respondents said that they have not yet planned for retirement. Half of that group actually give little thought to planning anything at all and the other half admitted that they have not done any planning at all.

31% said they do not have any savings for retirement. 2 out of 10 respondents are those who are nearing retirement. 25% said they have no clue how they will pay for their expenses when they retire. 24% of those aged 55 to 64 said they plan on working until they drop just so they have the resources to pay for retirement expenses.

Thanks to the Great Recession, a lot of people had to push back their retirement date. 15% of the people who retired after the economic crisis said that they did so earlier than planned because of it. The main reason is possibly the rampant job loss that happened during that time.

It is obvious that this is also one of the important improvements that Americans need to work on. Consumer habits that will help boost retirement funds include getting rid of debt, saving more from the income and making smarter investment choices.

Medical expenses

The last of the financial areas that need serious improvements is all about medical expenses. The cost of getting medical care is steadily rising. More and more people are being saddled with huge medical debts. In fact, it may even be true that some medical bills are making people sick from the stress.

The survey mentioned that 34% did not seek medical help in the past year because they could not afford it. 43% said they cannot afford a major medical treatment because of the out of pocket expenses. This means a lot of consumers who are burdened with medical debt are those who have health insurance. Despite the coverage, they are still having troubles with their medical expenses. If this is the case, then how much more difficulty are those without insurance facing at the moment?

We cannot really encourage everyone to get a health insurance if their monthly income cannot afford it. But the consumer habit that you need to implement here is clear – saving up for an emergency fund.

How to improve your financial habits

Improving consumer habits is easier said than done. After all, a habit is something that you do unintentionally. It is also something that you usually like to do. That makes this action a hard one to get rid of.

Here are some tips that you may want to use in order to improve your consumer habits.

  • Know why you have to change the habit. This will serve as your motivation to be successful in changing your habits. You can choose to be negative about it by focusing on the dangers of not changing your ways. According to TheGuardian.com, the debt of Americans are rising “ominously.” The article is predicting that if things do not change soon, it could lead to another economic crisis.
  • Set a goal. This is the positive way that you can motivate yourself to change your consumer habits. Find a dream that you want to achieve in the future and focus your energy on that. It should help you work on the habits that you need to develop.
  • Identify the habits that you need to develop or remove. It is easy to do this. If a particular habit will keep you from your goals, then that is a bad habit. If the habit can bring you closer to the goal, then that is the good habit. In most cases, the good consumer habits include budgeting, saving, smart spending and investing.
  • Implement the right habits. Lastly, you want to be able to implement the correct habits to replace the bad ones. It is said that if you do something consistently for the next 21 days, that can be developed into a habit. That maybe something that you can do to make sure that the habit will stick.

budgetingA survey featured in one of the articles on this website mentioned how consumers will focus on better credit management in 2014. This is something that Americans have to seriously work on because debt was the avoidable cause of the Great Recession. Although the collapse of the economy was so severe that everyone felt it, you have to admit that it was our consumer habits – specifically our credit behavior, that made things worse. Losing a job may be very devastating but it could not have been so bad if we did not have so much debt.

That is the main flaw of American consumers. We love to spend. In fact, not only do we love to spend, we do so excessively. We want everything big and expensive – from houses to cars to clothing and gadgets. If given the money, we will be spending them to our hearts content. That is just how our culture shaped us.

Obviously, most of us had a lot to learn after the effects of the Great Recession happened. Consumer credit in June 2014, as reported by BusinessInsider.com, still grew at $17.2 billion ($16.3 billion non-revolving debt and $941 billion revolving debt). Old habits die hard but we have to do something to make sure that we will not repeat the mistakes of the past.

Summary of the 2013 consumer behavior of Americans

The Federal Reserve created a survey to analyze the economic well-being of American households in 2013. The data revealed how Americans dealt with 6 different financial areas in their household: housing, credit availability, college finances, savings, retirement and finally, medical expenses.

The results of the survey done in September 2013 as it was published on FederalReserve.gov show the consumer habits of Americans as it rides on the economic recovery of the country. In general, the survey revealed that most American families are economically okay. It is not great but they are surviving. They are not as desolate as they were before and that improvement is still good news.

The overall results of the survey gave the following statistics:

  • 60% of respondents said they are living comfortably while 25% mentioned that they are living from paycheck to paycheck. 13% are struggling with their finances.
  • The respondents of the survey admitted that they are still feeling the after effects of the recession – with 34% actually saying that they are still in a bad shape compared to the pre-recession time. Only 30% said that they are in a better financial position than 5 years ago.
  • 4 out of 10 Americans have delayed a big purchase because of the recession. 18% admitted to delaying a major milestone in their life because of the financial crisis a few years back.
  • Almost half of respondents are able to put away money into their savings. 2 out of 10 Americans are spending more than what they are earning.
  • 61% expected that there will be no improvement in their income for the next year. 21% expected it to increase while 16% expected it to go down.

These finding are all dependent on the consumer habits that the average American family is implementing in their lives after the recession. While most of them are saying that they are “okay” they are still exhibiting some personal financial stress.

What financial habits did we do right in 2013

To explain every financial area thoroughly, we will be dividing this topic into two articles. In the first one, we will be concentrating on the consumer habits that improved. Sadly, of the 6 financial areas, only two of them can be considered has having acceptable results.

Housing

Buying homes are generally positive in 2013. A lot of homeowners are expecting that the value of their homes will increase in the next 12 months – which will increase their equity. In fact, 26% of them believe that the increase will be 5% or less. 14% said that they expect it to increase by more than 5%. While the general belief if that the current value of homes will increase, homeowners are also saying that their current equity was still lower than it was in 2008. At least, 45% of them believe this is so.

The positive outlook is not only benefitting the homeowner, but also renters. The latter is getting more encouragement to buy a home. More of them are planning to become homeowners themselves – rather than continue on renting. What is stopping them from pushing through is their inability to save up for the down payment and to qualify for a mortgage. While it is bad that they cannot afford both, it is comforting to know that they understand the importance of having a down payment and a higher mortgage qualification rate before buying a house. We are getting hints that these consumers are wising up when it comes to borrowing money for homeownership.

Savings

The other financial area that we think is good enough is the savings of the average American household. While the survey said that it is not really the best statistic, we believe that it is improving. It is apparent that consumers know that they should start saving now. A lot of Americans had to deplete their savings after the Great Recession – 57% of them. This is expected. But a lot of them are also showing they they are exhibiting better consumer habits when it comes to saving. 55% of respondents said that they are saving a portion of their income. The average savings rate is at 9% – a little short of the ideal 10% but it is good enough. The survey revealed that the median savings is lower than 2%. But if we only consider the consumers who did save, the average percentage of savings is at 16% while the median becomes 10%.

Although we want to classify this as an positive consumer behavior by Americans, it still needs to be improved. After all, there is still the 45% who failed to save their income. 39% of the survey respondents said that their rainy day fund is enough to cover three months worth of expenses. While the ideal is 6 months, this is better than having none. It is also revealed that 48% of respondents said that they can only cover an emergency cost of $400 in case it happens in the near future. This means we have a lot of improving to do when it comes to this habit. The bigger improvement, the more financial security will be felt by households.

There is more room for improvement in our financial behavior

Some of you may think that positive consumer habits from 2 out of 6 financial areas is not really something to brag about – that is true. But at least, studying the statistics will help us understand specifically what financial behaviors will need improvement. If we cannot do them, then we may not see the light of day in case another financial crisis occurs.

While we want to be positive about the economy, we also need to be cautious and mindful of the mistakes that we made in the past. We have to ensure that it will not happen again so we can move forward already. Building wealth takes time. Not only that, it requires discipline and self control. If we cannot improve our habits, there is no way for us to rise from the slump that we are obviously, still in.

In the next part of this article series, we will be discussing the 4 financial areas and the incorrect consumer habits that led to the decline of the statistics in our debt, college finances, retirement and medical expenses.

So, you have now figured out just exactly what kind of assets you have to work with and you have a good plan set out for consolidating your retirement money. At this point, you might feel like you just get to sit back and watch the wealth grow, right? This is definitely not the case! In order for you to have a successful and comfortable retirement, you also have to evaluate and organize your investments and make sure that they stay on track with the goals that you are trying to reach. Don’t get lazy now; here are some helpful ways to keep your investments in line.

Consolidate Your Retirement Money

Examining Your Investments to Consolidate Your Retirement Money

Sit down and make a comprehensive list of your assets and where you currently have them invested. You should do this by grouping them into categories of time horizons and your risk tolerance and what kind of objective you are fulfilling with each. Examine each one to see how well it is fitting the goal of consolidating your retirement money. Make sure that you have enough money in your safer, slow building investments to keep you well protected for those rainy days.

When you are evaluating your portfolio, it’s important to look at the amount of time that you are willing to let your investments grow as well, especially if you are not going to retiring for several decades. This can give you some really good incentive to put a little bit more into growth funds in order to effectively capitalize on your opportunities to consolidate your retirement money to its fullest potential.

Organization Is Key for Consolidating Your Retirement Money

Once you have looked at each one of your investments and know a little bit more about where they are sitting at, you should take steps to make sure they are well organized in order to achieve your goals. The first thing to look at is the way that your individual accounts are divided. You can rearrange your investments to make your life a little easier and to reduce confusion.

If you have several different IRAs then you can easily put them together to make things simpler. Pay attention to any penalties for other types of accounts that you might want to combine and keep in mind that with some of them there can be tax issues for combining them.

If you have investments that are funded by your money after tax then it is really important for you to keep them separate from your other investment types. If you don’t then you will have to pay attention to your distribution schedule to avoid being penalized. This can be a lot of hassle when you are trying to consolidate your retirement money and it’s best to avoid this situation.

Don’t Be Afraid To Switch Things Up

You should remember that you didn’t sit down and spend all of that time evaluating your investments for no reason. It’s necessary for you to actually pay attention to the information that you have gathered so that you can make sure that all of your money is doing exactly what it is supposed to be doing for you. If you notice something that is not performing well, then don’t be afraid to replace it with something that might work better, or to take that money and add it one that is doing what you need it to.

Take this information to look at how diversified your portfolio is, as well. Having it all laid out in front of you in one area can make it a lot easier for you to tell if you need to make some adjustments. You can prevent your portfolio from becoming too lopsided by simply paying attention to where you money is sitting. This gives you the perfect opportunity for some rebalancing.

Make sure that you are paying attention to how you consolidate your retirement money. This is the only way for you to be effective and efficient with your investments. If you find that you don’t have the time or the patience for this task, then it is critical that you have a financial advisor that you trust to help you with the decisions regarding your portfolio.

Remember, you need to evaluate your investments from time to time and make sure that your portfolio is diverse and is performing to match your expectations. You also can consider combining certain types of accounts in order to simplify your life and cut down on the number of people and companies that you have to go through for your money. If you do this, however, pay special attention to the tax issues surrounding different kinds of accounts. All of this should make it much easier for you to see how your assets are growing for you and how you can adjust them for better profit.

familyWe’ve all been concentrating on how we can impart money lessons to our kids. But have you ever wondered if there are certain financial lessons that we can get from children?

In a world that believes in the concept that kids will always be dependent on adults, this seems like a difficult concept to follow. Ou pride as adults will make us unwilling to get lessons from our kids. After all, it is our jobs to teach them – not the other way around.

However, you need to realize that as adults, we also make mistakes. We get to stumble and fall and that is an indication that we also need to get some lessons of our own. In most cases, we turn to those whom we think are greater than us. But the truth is, there are certain concepts, especially when it comes to financial lessons, that requires us to take a step back. It is not always true that we should always learn from those whom we think are intellectually superior than us. There are some cases wherein looking at thing through the perspective of a child is the best way to learn important concepts about life.

How adults and kids look at finances differently

We all know that adults and children think differently from each other. According to a study published on Eurekalert.org, the difference between an adult and a child’s perspective is based on how they are able to process information that their senses take in.

Apparently, a child is only able to process sensory information separately. As they grow older, they are able to combine senses to make more accurate perceptions about their surroundings – just like how adults do it.

For instance, while standing in a busy street, a kid would only perceive that the place is noisy. But an adult is able to process that the street is noisy because of the blaring horns from cars and the large number of people present. In the same way, a kid will perceive that a dollar bill can be used to buy something but an adult will think about what they can buy from that money – and things like where that money came from, etc.

While the accuracy that adults have when it comes to processing information is ideal, it also tends to be complicated. It may not be the best way for us to get out of certain tight spots – especially when it comes to our finances. This is why there are certain financial lessons that we may want to get from children. Their simple point of view can oftentimes be what we need to get out of tight financial spots.

5 lessons about money you can take from kids

Here are 5 lessons that you may want to learn from the little ones.

  1. The product is more important than the brand. When kids want a toy, they will not care where you will get it. All they care about is the toy. If you get it from a yard sale or Toys R Us, it does not matter as long as they will get the toy. The same should be your perspective in buying stuff. As long as you can supply the requirement, the brand should not matter at all. Kids will enjoy any toy – period. It is more about the experience and not where the toy came from.
  2. Saving should be fun. You cannot make a child do something that they cannot do. That is why we usually try to make saving fun for them. Well that is something that we need to implement in our lives too. An article published on CBS19.tv mentioned that 68% of Americans admit that they are not saving even if they have extra after all their expenses. They tend to spend it too. It seems that saving is hard because we lack the incentive to do so. Attach rewards to your saving goals so you can be more motivated to reach them.
  3. Having less of something you really want is still great. Americans have a reputation of being excessive spenders. When we want something, we want to have it in abundance. Excessive is never a good thing and this is one of the most important financial lessons that you need to learn. Notice how a child will not mind if they wear their favorite shirt or dress over and over again? They do not mind having less as long as it is something that they want. They do not need two shirts because one is enough. That is a concept that you need to adapt – less is sometimes more rewarding.
  4. Money is just a tool. Kids do not obsess about money the way adults do. They are more concerned about how it will help them make the purchases that they need. They also understand that it can run out but that is okay. They can get more of it. We need to stop stressing about the lack of money and instead just focus on making it fit our needs. If is does not fit, do something to make it fit – cut back or earn more. It is as simple as that.
  5. Starting small is not so bad. When kids are saving for something, they do not obsess that they only put aside a dollar or a few cents each day. They concentrate on the amount that they want to save up so they can buy the toy that they have always wanted to buy. They know that if they keep at it, they will eventually save enough. This is another one of those financial lessons that we need to learn – whether it is regarding saving or paying off debt. WashingtonPost.com revealed that some people are discouraged by saving because they can only put aside a small amount. This should be a mentality that you should try to change. It does not matter the amount that you can put aside. A small savings can grow over time.

4 important financial concepts that will make you rich

All of these financial lessons are meant to help us guarantee financial success. We do not want to be materialistic but this is what our consumerist society expects of us. Fortunately, there are certain concepts that you can implement in your financial life that will guarantee your success.

  • Budgeting. When you want to be successful, you should be able to control your finances. This is one of the important requirements if you really want to improve your financial situation. What you want to happen is to know how much you are earning each month and where you want it all to go. That way, you can control where the money will go so you can ensure that priority expenses are always met.
  • Smart spending. Another concept that is important in accumulating wealth is smart spending. You need to learn when to say yes or no to the purchases that you want to make. Even if you can afford, it does not always mean that you should buy something. Sometimes, if it is not needed, you have to opt to save instead of spending.
  • Saving. The third of the financial lessons that you should implement is to save. While it is important to finance what you need in the present, you need to save for the future too. This is how you can avoid financial problems that involve debt or the lack of retirement funds.
  • Investing. Lastly, you want to be able to invest what extra money you have put aside. This is actually one of the two factors that will help you accumulate wealth fast. Make your money work for you by investing it.

man holding credit cardsWould you believe it if we told you that your credit card can help you improve your finances?

No we are not affiliates of any credit card company. In fact, we do not dispute the fact that credit cards are part of the top financial problems of Americans – especially for those who are just about to retire. These pre-retirees are currently struggling to pay off their card balances, just as they are having problems with health care costs and low wages. You cannot blame them for worrying about debt at their age because they are running out of time before they are to retire. After all, nobody wants to carry debt into retirement. What little resources you have will have to be shared with your debt and that is not the ideal retirement scenario.

But if you think about it, there are certain benefits to credit cards. You should not be too quick to judge this piece of plastic because there are good things that can result from owning one.

The truth is, the credit card is not to blame for our financial difficulties. It is our own habits that have led to our financial destruction. According to NerdWallet.com, we are a charge happy nation. We all love to use our cards. This is actually not bad because consumers in Canada have the same attitude. Their average card purchases have gone up to $7,406 a year. But here’s where they do it right and we don’t – they pay their balance in full and on time. At least, 64% of them do so. That is not the same for Americans. We charge purchases to our hearts content and we fail in paying them back. We carry the balance over the next billing cycle and end up growing our debt unnecessarily because of finance charges.

So in the end, you can see that the credit card is not entirely to blame for our financial difficulties. We only have ourselves to blame. Instead of blaming them, why not use your card to improve your financial situation?

There are three ways that this can happen.

Use your charge card to practice credit management

The first advantage that will benefit our finances is using our credit card to practice credit management. Complete debt elimination is not necessary to be a financial success. In fact, some of the wealthy Americans have taken on debt and by applying credit management, have used it effectively to grow their personal net worth.

One of the ways you can emulate them is to learn how to maximize the use of cards without ending in debt. It is possible but it takes discipline and practice.

Credit management is the key to never be scared of debt ever again. Debt is a useful tool to propel yourself towards a wealthier you but you need to know how to manage it responsibly. Failure to do so will lead you to destruction. Here are some of the situations that you will be immersed in that will teach you the basics of credit management.

  • You will learn that the convenience of using someone else’s money comes at a price – the interest rate. It will make you more cautious about how you will use your credit.
  • You will be aware of terms like interest rates (APR), grace period, finance charges, billing cycle, and due dates. If you want to stay out of debt, these are the terms that you need to understand.
  • You will be cautious of making payments on time. To avoid late payment charges, your credit card will help train you to pay your due on time. Otherwise, you will be growing your balance and waste your money in the process.
  • You will learn how to budget your money to make way for your monthly credit card payments.

These are only a few of the things that you will learn as a credit card holder. If you notice, all these will happen as you try to stay away from debt. According to Gallup.com, Americans have started improving their credit card habits by lowering the average number of credit cards that they own (from 4 to 3.7) and making a habit of paying their dues on time. All of these improvements were caused by what consumers experienced when they were faced with too much credit card debt during the Great Recession.

Use your card to improve your credit score

Another benefit of using credit cards is to improve your credit score. A good credit score is an indication of good credit management skills. It means you can be trusted credit. It also means the creditors and lenders will not be forced to impose high interest rates on you to protect themselves from the chances of you not paying your loan.

There are several ways that you can use your credit card to increase your credit score.

  • Credit utilization. According to CreditKarma.com , there are many models being used to compute your credit rating and the most popular is the FICO score. In this model the credit utilization is 30% of your score. This is the ratio between your credit limit and your balance. If you can keep your balance low, you can increase your credit score.
  • Payment behavior. Another big factor in your credit score is your payment habits. When you pay your dues on time this will reflect positively in your credit report. In a FICO score, this is 35% of your overall credit score.
  • Opening and closing card accounts. Your credit score also looks at the old credit accounts that you have – the longer you have it, the better it will be for your score. In the same way, new accounts can lower your score if you apply for them all at the same time.

The beauty about using your credit card to maintain a good credit score is the fact that you do not have to reapply to keep in using credit – like you would for personal loans. You just have to keep your balance low and use your card repeatedly. After all, maintaining a good credit score will force you to use credit but not to be in debt. There is a difference. If you use your card for purchases and pay it off in full at the end of the month, a high score will not be a problem for you.

Use your plastic as a debt relief option

Lastly, your credit card can help you solve your debt situation through balance transfers.

There are 0% balance transfer credit cards that will allow you to pay off your debt without interest for a specified period of time. Here’s how it works.

You will apply for a new credit card that accepts 0% balance transfer. Then, you will transfer all your high interest balances to this new card. Depending on the credit card issuer, you will be given from 6 to 18 months to pay for your debts at 0% interest. You can maximize your monthly payments and you do not have to worry about any finance charges for the balance that will be left in the account at the end of the month. At least this is true until the 0% period ends.

There are certain tips to help make this debt solution highly effective.

  • Live on a frugal budget for the next 6 to 8 months so you can make high contributions towards your credit card payments. Take advantage of the 0% to lower your principal debt significantly.
  • Do not use your balance transfer cards for new purchases. It is, technically, still a credit card that you can use for purchases. However, most cards will only impose the 0% on the transferred balance. The new purchases might have high interest rates – which will increase your debt even further and defeat the purpose of the debt solution.
  • Do not use your other cards. For the cards that you transferred the high interest balance from – do not give in to the temptation of using them. The zero balance on your old cards will be very tempting to use.