Boston College: Americans Are Shortsighted When It Comes to Finances

Americans of all ages and income levels are shortsighted about their finances, choosing to focus more on immediate day-to-day needs rather than a financially secure retirement down the road, according to a new study by the Center for Retirement Research (CRR) at Boston College.

Based on data from the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation’s 2012 survey of more than 25,500 American adults, the CRR concludes that Americans are “present-minded” and “cannot be expected to devote much effort to addressing distant financial needs.”

The findings aren’t exactly a surprise, however, given the slew of research suggesting the nation’s “retirement crisis” and Americans’ overwhelming unpreparedness for their post-career days.

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But to test exactly how shortsighted Americans are with their finances, the CRR study measured the strength of the relationships between households’ financial satisfaction and their day-to-day or distant financial problems.

Among the financial indicators used in the analysis were day-to-day problems such as difficulty covering expenses, heavy current debt burdens, unemployment and inability to access $2,000; and distant problems such as having no medical or life insurance, no retirement plan, mortgage underwater and others.

Day-to-day problems were associated with the largest reductions in financial satisfaction, suggesting that these concerns were top of mind for most of the survey respondents, while they were putting distant financial problems on the back burner.

A surprising result, CRR writes in the study, is that having no retirement plan — neither a defined benefit pension plan nor 401(k) or IRA savings — had no statistically significant effect on the financial assessments of workers in any age group, even those approaching retirement.

Still, the researchers note that the lack of attention given to distant needs, such as retirement planning, does not mean that people will resist efforts to nudge them in the right direction, citing the success of auto-enrollment in 401(k) plans.

“With the shift in financial responsibility to households, it is important to make saving easy and automatic for households at all ages and income levels, so that they can set aside enough to secure a basic level of financial well-being in retirement,” authors Steven A. Sass and Jorge D. Ramos-Mercado write.

Access the research brief here.

Written by Emily Study

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  • Emily,

    Shouldn’t the preposition phrase “among the financial indicators used in the analysis were day-to-day problems such as difficulty covering expenses, … no retirement plan, mortgage underwriter and others” end with “mortgage underwater and others?”

  • BCCRR studies are notorious for utilizing the original work of others in creating a study; however, using data from 2012 is rather interesting but marginally credible in trying to describe the outlook of the population on financial planning now even if the conclusions would have been the same with 2015 data.

    In showing how little the authors actually understand retirement planning, the authors state: “’No retirement plan” is no defined benefit pension accruals and no 401(k)/IRA savings.” Where are nonqualified retirement plans, profit sharing plans, and other defined contribution plans?

    The study reads more like a “publish or perish” type publication rather than two people who were trying to present a subject in which they were vested and full of passion.

  • Good catch The_Critic! In reading the article and the study done by the CRR at Boston College, it makes me wonder?

    Their study seems to be saying that the American people are shortsighted when it comes to finances and their retirement?

    Why does this study seem to put all the burden on the American people. What about the false economic growth that occurred between 1999 and 2008, which was when we had the largest economic and housing crash since the great depression.

    In 1999, Clinton did all he could to remove the Glass Steigal Act and opened up the flood gates for borrowing money with very little difficulty, it became a field day! The Gramm-Leach-Bliley Act that Clinton signed back in 1999 saw to that!

    The period between 1999 and 2008 was a growth period in our economy that was created by more debt in the hands of the American people than I can ever remember!

    Many Americans were financially destroyed by this false growth, they saw their home values collapse, their IRA’s and 401-k’s all but disappeared on them, many lost their jobs and a great deal of these people were close to retirement or were planning for it in the right way.

    I don’t see this study getting into any of these areas, it seems the study wants to put the majority of the problem and blame on the backs of the American people.

    Many seniors still own their homes and have plenty of equity in them. Also, we are seeing over 8,000 people turning 62 years old each day and that is expected to go on for the next 15 to 20 years. In short, there is hope for many seniors by utilizing and leveraging their equity to create a retirement plan with a reverse mortgage.

    We in the industry have the opportunity before us to guide and help many seniors that may of been effected drastically between those time periods I mentioned, 1999 up to 2008. Believe me, their are many in this position!!

    John A. Smaldone

    • John,

      To a great degree we agree.

      Today our HECM spiel may emphasize how our current HECM (the Saver v.3, which HUD calls HECM 2014 in its stats documents) is less available as a loan of last resort but remains a great financial planning tool yet what examples are being used in that same spiel? They are generally about saving a home or providing cash to a senior in dire straits.

      Somehow we have yet to realize that our parroted theory on the current HECM is incongruent with the examples we use. Like most creatures of habit we do not really have practical applications demonstrating how HECMs are a cash management tool for more affluent seniors so we return to the familiar and old. Rather than helping our audience realize the value of what we parrot, we bring them down to what we understand and have enjoyed in the past, helping the needs based senior.

      I see this everyday. Someone starts waxing on and on about how the changes mean HECMs are a better product for a broader segment of the senior population but have no idea why. Such loan officers may be able to repeat what they hear but their in depth understanding is nonexistent because in part they just do not get it.

      We need to see and understand that giving examples of helping needs based seniors from the days of the fixed rate Standard does not strengthen the case for today’s HECM being a financial planning tool and that all it invites are questions about how today’s HECM is different.

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