Presentation on theme: "Presented By Tamara D. Williams, MA Chicago State University Group Disparities in Financial Behaviors and Motivational Tools Required to Implement Change."— Presentation transcript:
Presented By Tamara D. Williams, MA Chicago State University Group Disparities in Financial Behaviors and Motivational Tools Required to Implement Change
Behavioral Groups Gender Race Age Sub-Topics Educational Attainment Socioeconomic Status
Gender Disparities Women are more likely than men to: Experience diverse work histories, Be influenced by family responsibilities and family life cycle stages across the life span, Be exposed to social roles beyond the work force, encounter financial instability, and Live in retirement for a longer period of time (Price, 1998).
Gender (Financial Literacy) There is a substantial difference between males and females in financial knowledge at nearly every age level, but particularly for older and younger respondents. No significant financial knowledge difference between women and men was noted for those aged (Woodyard & Robb 2012).
Gender (Employer Provided Programs) Women were 1.1 times more likely than men to work for an employer with a retirement plan (Wright 2011). Minority women and currently married women were significantly less likely to work for an employer with a retirement plan than their male counterparts (Wright 2011).
Gender (Financial Planning) Due to increased earnings and work patterns minority women, particularly Hispanic women are projected to retire on their own earnings and they will not be eligible for auxiliary benefits because they typically do not meet the ten year marriage requirement to earn them. There is also substantial difference between males and females in financial planning at nearly every age level also excluding ages 35-44, where men plan more.
Gender (Saving) Within qualified savings plans women consistently exhibit greater relative risk aversion. (Bajtelsmit, Bernasek, and Jianakoplos 1999). The fact that women tend to invest more conservatively means that women may accumulate less in total retirement assets over time (Bajtelsmit, Bernasek, and Jianakoplos 1999).
Race (Financial Literacy) Minorities and low-income families are less likely to have access to financial systems and literacy programs. In the United States, many low income and minority families do not have checking, savings, insurance, or retirement plans (Williams, Grizzell, & Burrell 2011).
Race (Employer Provided Programs) Minority status had a significant negative impact on the likelihood of working for an employer with a retirement plan (Wright 2011). The overall odds being about three fourths the odds for nonminorities (Wright 2011). Racial differences in employer provided programs may also be attributed to discrimination among lenders. (Choudhury 2002).
Race (Financial Planning) Less than forty percent of African Americans and Hispanics have asset income compared with more than 60 percent of whites. Among current private sector workers aged 21 to 61, fewer minorities have pension coverage. The rate has dropped significantly for all demographics since the seventies, but the decline has been greater for minorities (Hendley & Bilimoria 1999).
Race (Saving) White households have at least five times the wealth of minority households yet earn, on average, just twice as much as minority households (Choudhury 2002). African-Americans are less likely than non-Hispanic Whites to use housing dollars to generate home equity, a major source of wealth in the United States (Dinkins 1994). Non-Hispanic White families tend to be disproportionately more likely to transfer wealth than African-Americans (Choudhury 2002).
Age (Group Disparities) There are few age group differences in the practice of preferred financial behaviors except for the older population comprised of the Boomer generation (Woodyard & Robb 2012). Baby Boomers are diverse with regard to race and ethnicity. According to the U.S. Census Bureau (2010), 42% of the population aged 65+ years in 2050 will be members of an ethnic minority group; the fastest growing group is Hispanics.
Age (Group Disparities) Baby Boomers: More highly educated More likely to occupy professional and managerial positions More racially and ethnically diverse than their predecessors (Frey, 2010). Higher rates of separation and divorce and lower rates of marriage
Age (Group Disparities) Gave birth to fewer children (Hughes & O’Rand, 2004). On average, they are healthier and have longer life expectancies at age 65 (Freedman, Martin, & Schoeni, 2002; Manton, 2008). They have had more varied work histories, longer transitions out of the labor force, and work for more of their adult years (Quinn, 2010) than previous generations.
Age (Financial Literacy) The majority of workers (63 percent) would like more education and advice from their employers on how to reach their retirement goals. Workers were asked what would motivate them to learn more about saving and investing for retirement, the most frequently cited motivators among workers of all generations were related to making it easier to understand. (Collinson 2011).
Age (Employer Provided Programs) Boomers Compared Generation X & Millenials: Sixty-eight percent of workers have access to a 401(k) or similar employee-funded retirement plan. Generation X (74 percent) are most likely to have access to a plan while Millennials (62 percent) are least likely. Boomers were already mid-career when the retirement landscape shifted from defined benefit plans to 401(k) or similar plans provided by employers. They have not had a full 40-year time horizon to save in 401(k)s and enjoy the long-term compounding of investments.
Age (Employer Provided Programs) Generation X is the first generation to have access to 401(k)s for most of their working careers, and they highly value them as an important benefit and have high plan participation rates. Millennials most expect their primary source of income in retirement to be self-funded. The good news is that they are getting an early start with their savings and are taking advantage of the latest innovations that their employer-sponsored retirement plans have to offer.
Age (Planning) Millennials (62 percent) are mostly likely to use a professionally managed account and the majority of Generation X (56 percent) does so as well. Baby Boomers are least likely (47 percent) to use “professionally managed” accounts and more likely (50 percent) to be do-it-yourselfers, setting their own asset allocation percentages among available funds in the plan (Special Issue 2012).
Age (Saving) Seventy-eight percent of workers are saving for retirement either through retirement benefits, such as a 401(k) or similar plan, or outside the workplace. Seventy percent of Millennials are already saving for retirement and they are starting early: Starting at age 22 (median). Generation X (83 percent) and Baby Boomers (81 percent) are saving for retirement but started at an older age. Generation X started saving at age 27 (median), while Baby Boomers got the latest start at age 35 (median) (Special Issue 2012).
Educational Attainment The growth in educational attainment between 1970 and 2000 was greatest for black women, whose share completing high school more than doubled and whose share completing college more than tripled. Although by 2000 the gap in educational attainment between white and black women and white and Hispanic women had dramatically decreased, white women were still more likely than black and Hispanic women to complete high school and college (Table 216 in U.S. Census Bureau, 2001).
Educational Attainment (cont.) The likelihood of working for an employer with a retirement plan increased by almost 1.3 times for men and almost 1.2 times for women for each additional level of educational attainment (Wright 2011). Among households with less than a high school education, home ownership rates for minorities are considerably lower than those for whites, but the gap shrinks among households with a college education (Choudhury 2002).
Socioeconomic Status (SES) Socioeconomic status is positively related to access in resource-rich networks. The higher the individual’s socioeconomic status, the more reliable their sources are (Williams, Grizzell, & Burrell 2011). The poor’s sources do not have as extensive financial knowledge or expertise as those who higher in the socioeconomic ladder (Williams, Grizzell, & Burrell 2011).
Socioeconomic Status (SES) Access to information regarding saving and investing is rooted in broader systems of social inequality (Williams, Grizzell, & Burrell 2011). Higher SES individuals often work in less physically demanding jobs (Li, Hurd, and Loughran 2008) and may therefore have the ability to remain in the workforce longer. Work stress and a lack of personal control on the job are more common among lower SES individuals (Christie and Barling 2009).
Financial Literacy Financial literacy - is generally accepted as the ability to read, analyze, manage and communicate about the personal financial conditions that affect the material well-being. This includes, but is not limited to, the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond completely to life events that affect every day financial decisions, which also includes events in the general economy (Johnson & Sherraden, 2007).
Financial Literacy Knowledge is strongly linked to behavior in the area of personal finance, as more knowledgeable individuals generally display more responsible or effective financial behaviors (Woodyard &Robb 2012). The influence of classmates have significant effects on retirement savings decisions. and educational training effectively increases financial knowledge and improves the retirement planning of pre-retirees Hershey, Walsh, Brougham, Carter, and Farrell (1998).
Financial Literacy According to Hays (1999), “the most effective form of communication is retirement-education seminars that bring to life what lies dormant on paper” (p. 108).
Early Intervention Youth should not be limited to only the financial environments their families provide for them, rather the ability to compare and contrast in their personal experience with the ideal financial circumstances will increase their cognitive logic and develop their amplitude towards financial literacy with cause and effect experiences (Williams, Grizzell, & Burrell 2011).
Early Intervention “Financial literacy training must begin in the freshman year in order to help students anticipate and overcome many of the economic pressures they will face throughout college afterwards.” According to Godfrey (2006). The cohort approach to financial literacy is something to consider for future planners.
Projection Accuracy Under traditional retirement planning, consumer’s tend to oversave, underspend in their early years of retirement or postpone retirement. “Reality” retirement planning assumes that’s a household’s real spending will decrease in increments through retirement. The reality retirement planning approach enables the consumers to realize retirement seven years earlier than the traditional approach.
Projection Accuracy Reality retirement planning more accurately portrays the spending habits of the average American household. Incorporating these statistics into a client's financial plans can give a more accurate retirement projection. This advancement may hold the key to helping consumers realize more accurate projections on when they can retire and how much they need to fund this event.
Projection Accuracy More accurate projections can enable a consumer to determine the appropriate steps required to achieve specific goals in estate planning, tax reduction planning, and investment management.
Projection Accuracy Estate Planning: Having the ability to forecast future events could allow planners to take advantage of sophisticated gift and estate tax avoidance strategies as well as numerous other estate planning techniques.
Projection Accuracy Tax planning: Knowing the approximate size and timing of investment income could be useful information when developing a consumer's tax reduction strategy. The changes in projected tax rates could alter the way a consumer spends, saves, and distributes money from retirement accounts.
Projection Accuracy Investment management: Reality retirement planning has the tendency to require larger inflation-adjusted distributions early in retirement, with incremental decreases throughout a consumer's retirement years. This type of foresight would most likely determine a different asset allocation than what the traditional approach would suggest.
Discussion Financial literacy programs within the school system. Cohort approach utilization Employer based participation Technology based education Accurate projections Incentives
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