Essential financial life skills for 21st-century Americans
Having these financial life skills can help you navigate challenging economic environments.
- Americans are swimming in increasingly higher amounts of debt, even the upper middle class.
- For many, this burden can be alleviated by becoming familiar with some straightforward financial concepts.
- Here's some essential financial life skills needed to ensure your economic wellbeing.
When it comes to Americans' finances, the statistics paint a pretty grim picture. According to Northwestern Mutual's 2018 Planning & Progress Study, Americans are facing greater challenges than ever when it comes to their finances, and most don't seem to have the life skills needed to handle those challenges well.
One in five Americans have no retirement savings whatsoever, and a third of Baby Boomers have under $25,000 saved for retirement. With the increasingly dicey status of social security, this is going to mean a lot of older folks will be working for their entire lives. About 50% of Americans reported that they feel fear when considering their financial situation. The average personal debt rose to $38,000 in 2018 and that excludes mortgages, arguably the best form of debt one could have since its tied up with an asset. While mortgages are typically the most common form of debt, in 2018, credit card debt tied mortgages as the primary source of debt. And we don't even need to get into student loan debt.
These challenges aren't isolated to the lower class, either. Data from the Federal Reserve shows that all Americans aside from the top 10% are experiencing income stagnation. Upper-middle-class households are finding that the price of products and services are rising faster than inflation, forcing some to take on increasingly riskier forms of debt. In order to cope with this changing economic landscape, it's crucial that Americans master these financial skills.
Understand the power of compound interest
Compound interest refers to the exponential growth that happens when interest piles onto a sum over time. If you invest $5,000 at an interest rate of 7% per year, the next year that sum will increase by $350. If left untouched, the year after that, it will increase by $374.50. So long as that money remains untouched, it will grow at a rate that speeds up year over year, eventually reaching an impressive velocity.
Compound interest swings both ways: investing your money in a fund can be a fantastic way to build wealth, but leaving credit card debt to grow and grow is a fantastic way to give yourself an ulcer. If you have debt, it is vital that you pay off more than just the interest it gained. Consider the $5,000 example. After its first year of growing at 7% interest, you can't just pay $350 towards it — it'll never go away like that.
When it comes to student loan debt, programs like the Peace Corps can seem like a godsend. Joining volunteer programs like these often means you no longer have to pay your student loans for the duration of your service, but that doesn't mean your loan stops growing. Weigh all your options before letting debt accrue over time. Otherwise, you might be amazed at how horrifically large the beast has grown.
Understand retirement accounts
Though it might not seem too bad to put off saving for retirement until you've turned, say, 30, doing so means that your retirement account will be in fairly poor conditions. Because of compound interest, people who contribute more frequently and earlier to their retirement account will have disproportionately more money available when they retire.
Many people are not in the position to contribute to their retirement accounts. More immediate needs like groceries, rent, and other bills take precedence. But even small amounts can make a significant difference if they're started earlier rather than later. Even if you haven't been contributing for years and retirement looms nearer on the horizon then you'd like, remember that the best time to plant a tree is a decade ago, but the second best time is right now.
For those of you fortunate enough to be employed in a job with employer matching contributions, absolutely contribute the maximum percentage of your income that employer will match. If you can afford to do so, then meeting your employer's matching rate is literally free money.
Understand different investment vehicles (and when to use them)
Everybody wants their money to grow, but it may not be appropriate for everybody to invest in things outside of their retirement fund. Namely, if you have debt with a relatively high interest rate, investing in securities may not be worth your time. Stocks, for instance, don't have a guarantee rate of return, though the average return of the S&P 500 is 7% per year. The trouble is, this figure can vary tremendously in any given year.
On the other hand, your credit card or student loan debt will always remain the same in fair weather or foul. So, if that debt carries a particularly high interest rate, you can in effect become wealthier by paying it down.
If you've got money left over after contributing to your retirement account and if your debt has a low interest rate or you're fortunate enough to have no debt whatsoever, then it can be beneficial to invest in another investment vehicle, like an index fund. Index funds track some financial index such as the S&P 500 and enable you to buy a small portion of everything in the index they track. If you invest in an index fund tracking the S&P 500, you can expect a 7% return on average — though it's important to remember the golden rule of investing: Past performance is no guarantee of future returns. It's also important to look at the expense ratio of a given fund, or the amount that fund charges investors for its service. Funds with high fees can seriously hamper your returns.
That's not to say that this is necessarily the best option for you. Just as every investor is different, every investment vehicle is different, each with its own upsides and downsides. It's important to consider factors like your risk tolerance and goals when selecting an investment vehicle. Investopedia offers a great deal of information, like this page covering the basics of different kinds of investments. There are also many excellent books on investing, such as Benjamin Graham's classic The Intelligent Investor, which is reliably found on lists of the best investing books, and The Essays of Warren Buffett.
Financial management is an essential life skill, especially in 21st century America. Obtaining financial security is difficult, but it is even more difficult without the knowledge of how to go about these things. It can be tempting to avoid considering these kinds of things when things are tough, but those moments are precisely when thinking about your finances is essential. Understanding the three items discussed above can help navigate America's choppy financial waters.
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What can 3D printing do for medicine? The "sky is the limit," says Northwell Health researcher Dr. Todd Goldstein.
- Medical professionals are currently using 3D printers to create prosthetics and patient-specific organ models that doctors can use to prepare for surgery.
- Eventually, scientists hope to print patient-specific organs that can be transplanted safely into the human body.
- Northwell Health, New York State's largest health care provider, is pioneering 3D printing in medicine in three key ways.
Can dirt help us fight off stress? Groundbreaking new research shows how.
- New research identifies a bacterium that helps block anxiety.
- Scientists say this can lead to drugs for first responders and soldiers, preventing PTSD and other mental issues.
- The finding builds on the hygiene hypothesis, first proposed in 1989.
Are modern societies trying too hard to be clean, at the detriment to public health? Scientists discovered that a microorganism living in dirt can actually be good for us, potentially helping the body to fight off stress. Harnessing its powers can lead to a "stress vaccine".
Researchers at the University of Colorado Boulder found that the fatty 10(Z)-hexadecenoic acid from the soil-residing bacterium Mycobacterium vaccae aids immune cells in blocking pathways that increase inflammation and the ability to combat stress.
The study's senior author and Integrative Physiology Professor Christopher Lowry described this fat as "one of the main ingredients" in the "special sauce" that causes the beneficial effects of the bacterium.
The finding goes hand in hand with the "hygiene hypothesis," initially proposed in 1989 by the British scientist David Strachan. He maintained that our generally sterile modern world prevents children from being exposed to certain microorganisms, resulting in compromised immune systems and greater incidences of asthma and allergies.
Contemporary research fine-tuned the hypothesis, finding that not interacting with so-called "old friends" or helpful microbes in the soil and the environment, rather than the ones that cause illnesses, is what's detrimental. In particular, our mental health could be at stake.
"The idea is that as humans have moved away from farms and an agricultural or hunter-gatherer existence into cities, we have lost contact with organisms that served to regulate our immune system and suppress inappropriate inflammation," explained Lowry. "That has put us at higher risk for inflammatory disease and stress-related psychiatric disorders."
University of Colorado Boulder
This is not the first study on the subject from Lowry, who published previous work showing the connection between being exposed to healthy bacteria and mental health. He found that being raised with animals and dust in a rural environment helps children develop more stress-proof immune systems. Such kids were also likely to be less at risk for mental illnesses than people living in the city without pets.
Lowry's other work also pointed out that the soil-based bacterium Mycobacterium vaccae acts like an antidepressant when injected into rodents. It alters their behavior and has lasting anti-inflammatory effects on the brain, according to the press release from the University of Colorado Boulder. Prolonged inflammation can lead to such stress-related disorders as PTSD.
The new study from Lowry and his team identified why that worked by pinpointing the specific fatty acid responsible. They showed that when the 10(Z)-hexadecenoic acid gets into cells, it works like a lock, attaching itself to the peroxisome proliferator-activated receptor (PPAR). This allows it to block a number of key pathways responsible for inflammation. Pre-treating the cells with the acid (or lipid) made them withstand inflammation better.
Lowry thinks this understanding can lead to creating a "stress vaccine" that can be given to people in high-stress jobs, like first responders or soldiers. The vaccine can prevent the psychological effects of stress.
What's more, this friendly bacterium is not the only potentially helpful organism we can find in soil.
"This is just one strain of one species of one type of bacterium that is found in the soil but there are millions of other strains in soils," said Lowry. "We are just beginning to see the tip of the iceberg in terms of identifying the mechanisms through which they have evolved to keep us healthy. It should inspire awe in all of us."
Check out the study published in the journal Psychopharmacology.
We were gaining three IQ points per decade for many, many years. Now, that's going backward. Could this explain some of our choices lately?
There's a new study out of Norway that indicates our—well, technically, their—IQs are shrinking, to the tune of about seven IQ points per generation.
An ordained Lama in a Tibetan Buddhist lineage, Lama Rod grew up a queer, black male within the black Christian church in the American south. Navigating all of these intersecting, evolving identities has led him to a life's work based on compassion for self and others.
- "What I'm interested in is deep, systematic change. What I understand now is that real change doesn't happen until change on the inside begins to happen."
- "Masculinity is not inherently toxic. Patriarchy is toxic. We have to let that energy go so we can stop forcing other people to do emotional labor for us."
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