Data & Research October 26, 2017

MassMutual Study Says African-Americans Want More Financial Education

Forty-five percent of African-Americans who bring home $75,000 or more say they feel less than financially secure compared with just 28% of other Americans in the same income category.
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“Across the board, African-Americans are more likely to say they are unprepared for retirement and feel less financially secure, but [they] are more open to education and financial guidance,” says Evan Taylor, head of MassMutual’s African American Markets.

His observations derive from a study by MassMutual that surveyed 492 African-Americans with an annual household income between $35,000 and $150,000. Forty-five percent of African-Americans who bring home $75,000 or more say they feel less than financially secure compared with just 28% of other Americans in the same income category.

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African-Americans are more likely to say they are behind in saving for retirement, and 41% of  survey respondents expressed concerns about making ends meet. Respondents also indicated a greater proclivity to making withdrawals or loans from their 401(k) or other employer-sponsored retirement plan compared with the general population—24% vs. 14%, respectively.

Middle-income African-Americans are more likely to report difficulty managing their household’s monthly finances than do others, the study notes. Thirty-six percent said they found managing finances “somewhat” or “very difficult” compared with 27% of the general population. Nearly half of African Americans with an annual household income below $45,000 find it “much more difficult” to manage their finances.

According to the study, the top financial issues African-Americans face are:

·       Debt – 28%;

·       Lack of income – 23%; and

·       Cost of living – 18%.

All of these numbers exceed what the general population reports. Meanwhile, African-Americans were nearly half as likely to worry about the cost of health care as others, the study finds.

While African-Americans are more apt to say they lack the knowledge or wherewithal to manage their money, they express a high level of interest in receiving more education and information about financial planning and money management. In addition, they are slightly more likely than others to agree that financial services companies want to help households such as theirs. However, significantly less of them work with some type of financial professional than do those in the general population—29% vs. 38%, respectively; 48%—almost half—say they are unsure where to go for financial advice.

Many middle-income African-Americans have a low level of savings, with three in 10 reporting smaller than a $500 emergency fund compared with two in 10 respondents in the general population. Most feel they could manage a sudden expense of $500, but those who couldn’t are more likely to use a payday loan—i.e., a small, short-term unsecured loan—than others, the study finds. More than half—55%—say an unexpected expense of $5,000 would cause them significant discomfort, or they wouldn’t be able to get by. Forty-five percent of the general population respondents report the same.

“The findings demonstrate a real need to reach more people, make financial education and guidance more readily available, and focus on financial wellness,“ Taylor says.

More findings are here.

 

 

 

Data & Research October 25, 2017

Financial Setbacks Cause Many to Dip Into Retirement Savings

This can put a person’s retirement in jeopardy, The Pew Charitable Trusts says.
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In a new report, “Financial Shocks Put Retirement Security at Risk,” The Pew Charitable Trusts examined whether financial setbacks cause people to tap into their retirement savings. Based on a survey of 5,661 households, Pew found that, in the past year, 13% of people who had experienced a financial shock drew from their retirement savings.

When all survey respondents were asked how they would handle an unexpected financial burden, 78% said they would turn to their savings accounts, 49% said they would use their credit cards, and 25% said they would draw down money from their retirement account. Over the span of their lifetime, more than half of households in the nation will experience some type of financial shock, Pew  found.

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The organization notes that people who take money out of their retirement account before age 59 1/2 not only have to pay taxes on the withdrawals but a 10% early withdrawal penalty. In addition, those who take out loans are typically banned from contributing to their retirement account over the life of the loan, and sometimes for an additional six months after it is paid off.

The median cost of financial shocks was $2,000. In years when someone in the household was unemployed, got a pay cut or experienced a marital change such as divorce, separation or a spouse’s death, the household was more likely to experience someone drawing from his retirement account.

People with a college education or higher were less likely to borrow against their retirement account than those with only a high school degree.

“This research underscores earlier Pew studies that found many American families are under financial stress—experiencing medical, employment or other shocks, and having insufficient liquid resources to deal with them,” says Alison Shelton, senior officer of The Pew Charitable Trusts’ retirement savings project. “When families turn to their retirement accounts to deal with financial shocks, they can permanently lower their retirement savings.”

Pew recommends that policymakers create a way that employers can automatically deduct small amounts from Americans’ paychecks to create rainy day funds. This, the organization says, could prevent many people from raiding their retirement fund.

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