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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.
Educators and administrators must build new supports for faculty and student success in a world where the classroom might become virtual in the blink of an eye.
- If you or someone you know is attending school remotely, you are more than likely learning through emergency remote instruction, which is not the same as online learning, write Rich DeMillo and Steve Harmon.
- Education institutions must properly define and understand the difference between a course that is designed from inception to be taught in an online format and a course that has been rapidly converted to be offered to remote students.
- In a future involving more online instruction than any of us ever imagined, it will be crucial to meticulously design factors like learner navigation, interactive recordings, feedback loops, exams and office hours in order to maximize learning potential within the virtual environment.
An MIT astronomer famously explained why aliens haven't contacted us yet.
A study finds people are more influenced by what the other party says than their own. What gives?
- A new study has found evidence suggesting that conservative climate skepticism is driven by reactions to liberal support for science.
- This was determined both by comparing polling data to records of cues given by leaders, and through a survey.
- The findings could lead to new methods of influencing public opinion.
Mind the cues<div class="rm-shortcode" data-media_id="CabkeAzx" data-player_id="FvQKszTI" data-rm-shortcode-id="169377c88f392a86f6c42180b74820a5"> <div id="botr_CabkeAzx_FvQKszTI_div" class="jwplayer-media" data-jwplayer-video-src="https://content.jwplatform.com/players/CabkeAzx-FvQKszTI.js"> <img src="https://cdn.jwplayer.com/thumbs/CabkeAzx-1920.jpg" class="jwplayer-media-preview" /> </div> <script src="https://content.jwplatform.com/players/CabkeAzx-FvQKszTI.js"></script> </div> <p>The gulf in accepting the science behind climate change also exists among party elites. It is well known to any American who is attentive to the news, as party leaders are often more than willing to discuss their take to journalists.</p><p>Using polling data going back to the 1980s, the researchers were able to create a chart showing the aggregate amount of climate skepticism among the general population. A similar diagram showing the Republicans' skepticism dating back to 2001 was sourced from a previous, similar study. It was shown to be highly correlated with the one produced for this study.</p><p>These charts were compared with media content from prominent newspapers that included implicit or explicit stances on climate change by significant political figures. These thousands of articles were classified by using key terms and which major political figures were quoted or referenced. The researchers compared the number of cues over time to measured skepticism and looked for "<a href="https://en.wikipedia.org/wiki/Granger_causality" target="_blank">Granger causality</a>," the tendency for one variable to predict the future value of another variable.</p><p>The model shows evidence of both in and out-group cue effects, though the repulsion to out-group cues was much more evident. A significant increase in Democratic cues in favor of climate science was followed by a rise in skepticism among Republican voters. Importantly, the cues lead, rather than follow opinion, and do so with consistency. Changes in view did not predict changes in the number or direction of cues. </p><p>The researchers also surveyed nearly 3000 adults to demonstrate the concept. This involved showing them a statement on the scientific consensus around climate change and a cue from either a Republican or a Democrat. This test confirmed the previous observation and provided further support for the notion that signals from leaders cause an increase in skepticism among some respondents.</p><p>Before my left-leaning and Democratic readers get too smug, this research references previous studies demonstrating a similar effect in the lead up to the Iraq War. However, in that case, the Democratic Party elites' mixed messages were countered by a Republican Party united behind the idea of invasion. The effect on the Democratic party rank and file was similar to that observed in this case. </p><p>Several other studies have examined effects similar to this for other issues. This study's importance is its focus on out-group cues and the effort placed into demonstrating a causal relationship between the statements of certain party elites and public opinion. Most previous studies focused purely on in-group cues or failed to differentiate between the two. </p>
Can thinking about the past really help us create a better present and future?
- There are two types of counterfactual thinking: upward and downward.
- Both upward and downward counterfactual thinking can be positive impacts on your current outlook - however, upward counterfactual thinking has been linked with depression.
- While counterfactual thinking is a very normal and natural process, experts suggest the best course is to focus on the present and future and allow counterfactual thinking to act as a motivator when possible.
“Upward” versus “downward” counterfactual thinking<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMzQ1NDYxOS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY0NDM2MDY2OX0.njWs1qrV1vDBxU1V75tUduUW4TjJvEHglDWsK8ZF2l4/img.jpg?width=1245&coordinates=0%2C556%2C0%2C209&height=700" id="a15fa" class="rm-shortcode" data-rm-shortcode-id="98314d4d2b256ed08f42d369fe4ae080" data-rm-shortcode-name="rebelmouse-image" alt="concept of man thinking about the past one line drawing counterfactual thinking" />
What are upward and downward counterfactual thinking?
Image by one line man on Shutterstock<p><strong>What is upward counterfactual thinking?</strong></p><p>Upward counterfactual thinking happens when we look at a scenario and ask ourselves "what if" in terms of how our life could have turned out better. </p><p>Examples of upward counterfactual thinking are: </p><ul><li><em>"I wish I had taken that other job instead of this one 10 years ago - my life would be so much better if I had." </em></li><li><em>"I wish I would have gotten the part in that high school play, maybe I could have gotten into a theatre school and became an actor…"</em> </li></ul><p>Both of these examples have the ideology that if you had made different choices, your life right now would be improved. </p><p><strong>What is downward counterfactual thinking?</strong></p><p>Downward counterfactual thinking is, naturally, the opposite of upward counterfactual thinking in that we think about how things could have been worse if other decisions had been made. </p><p>Examples of downward counterfactual thinking are: </p><ul><li><em>"I'm so thankful I studied secondary education in university instead of psychology like I had originally planned - I love teaching high school kids and I never would have gotten to do that…" </em></li><li><em>"I'm so happy I left David when I got the chance, I can't imagine still being in an unhappy marriage with someone who doesn't support me…"</em> </li></ul><p>In these examples, we see the idea that if you had made different choices your life would not be as good as it is right now. </p>
How counterfactual thinking can impact your life<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMzQ1NDYxNy9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYyNjI2MDQxOX0.DIVQ-Yk0d6yE3tc743MH1Fz2pOg1TGHLmhp8dPp9UdY/img.jpg?width=1245&coordinates=0%2C0%2C0%2C0&height=700" id="522d7" class="rm-shortcode" data-rm-shortcode-id="da7df6ad916b043e3610223900d0f8df" data-rm-shortcode-name="rebelmouse-image" alt="man thinking what if written on chalkboard" />
How do upward and downward counterfactual thinking impact your life?
Photo by Brasil Creativo on Shutterstock<p>While many people don't see the point in "what if" scenarios, various studies have found that downward counterfactual thinking can be more associated with psychological health compared with upward counterfactual thinking. Not only that, but research has also shown upward counterfactual thinking can be linked with current and future depression.</p> <p><strong>Downward counterfactual thinking tends to be more associated with psychological health </strong></p><p>According to a <a href="http://journal.sjdm.org/jdm06136.pdf" target="_blank">2000 study</a>, downward counterfactual thinking can be linked with better psychological health compared to upward counterfactual thinking. More importantly, in cases where downward counterfactual thinking did lead to negative feelings, those feelings acted as something of a motivator for people to take productive actions to better their current situation. </p> <p><strong>Upward counterfactual thinking tends to be more associated with depression </strong></p><p><a href="https://www.sciencedirect.com/science/article/abs/pii/S0272735816301714#:~:text=An%20upward%20counterfactual%20(as%20opposed,Markman%20and%20McMullen%2C%202003)." target="_blank">According to a 2017 study</a> that pooled a sample of over 13,000 respondents, thoughts about "better outcomes" and regret (upward counterfactual thinking) were associated with current and future depression. </p> <p><strong>Downward counterfactual thinking can actually improve your relationships and is more often engaged in by women than men.</strong></p><p>In a <a href="https://dspace.sunyconnect.suny.edu/bitstream/handle/1951/67589/Studer_Thesis.pdf?sequence=1&isAllowed=y" target="_blank">2016 research paper submitted</a> to the Department of Psychology at the State University of New York at New Paltz, downward counterfactual thinking in regards to romantic relationships was associated with relatively positive relationship outcomes. Interestingly, women were more likely than men to engage in downward counterfactual thinking about their romantic life. </p> <p><strong>Upward counterfactual thinking can have some benefits in certain scenarios. </strong></p><p>When we look back after a failed test and think "I wish I would have studied more" - this motivates us to study harder the next time a test comes up. In this way, upward counterfactual thinking (or the negative version of "what if") can actually benefit us. </p> <p><strong>This can be difficult, though, because much of the time upward counterfactual thinking is more associated with a pessimistic outlook that can be unmotivating. </strong></p> <p>Thinking in the past tense can be motivational (and even healthy) at times, but the best thing to do is look forward. </p><p>While counterfactual thinking as a whole can be used to motivate us to make better choices or appreciate where we are in life, <a href="https://www.psychologytoday.com/us/blog/darwins-subterranean-world/201809/the-psychology-what-if" target="_blank">this Psychology Today</a> article suggests that we should come up with ways to move on and focus on the present and the future instead of the past. Using counterfactual thinking as a motivational tool can be very helpful if we don't get stuck in the "what if" mindset that tends to pull us out of the present and back into the past, where things will always remain the same. </p>