Some colleges found dodging rules to lower student loan default rates

Universities in danger of losing the ability to participate in federal student aid programs may be attempting to evade regulatory oversight designed to address a significant student loan default problem facing the U.S., according to a recent U.S. Government Accountability report.

The GAO report — which puts federal student loan default at $149 billion as of September 2017 — showed that a handful of universities and colleges worked with consultants who encouraged borrowers with past-due payments to put their federal student loans in forbearance. Forbearance allows borrowers to temporarily stop making payments on their loans while still incurring interest on the balance.

Why do this? If too many borrowers from a school have student loan defaults within the first three years of repayment, the school may lose access to federal student aid programs, including collecting federal loan payments from new students — often a main source of revenue. Loans in forbearance, however, are not considered to be in default, which can help a university keep its place in the financial aid program.

Why does this matter?

While forbearance can help borrowers in the short term — for example, during a financial emergency, like a job loss or unexpected medical costs — it can have potentially detrimental long-term effects. For example, the GAO found that if the typical borrower with a $30,000 loan balance spent their first three years of repayment in forbearance, they would end up paying an additional $6,742 in interest. That’s a 17% increase.

Some people, like Rep. Rosa DeLauro, the ranking Democrat on the House Labor, Health and Human Services and Education Appropriations Subcommittee, have argued that Congress and the Department of Education should take steps to end the practice, by stopping consulting agencies from taking advantage of borrowers in this way.

The GAO itself recommended that Congress update the current accountability system — specifically asking for more transparency in how default rates are reported, and for a revised system that counts students in forbearance as part of the school’s cohort default rate.

Why should you care?

If you’ve had past-due payments on your federal student loans and attended a school that used a default-management consultant, you might have been affected.

According to the report, consultants working for certain universities often incentivized students with past-due loans to apply for forbearance. The report notes that some consultants offered gift cards to borrowers to encourage applying for forbearance, while others simply mailed or emailed forbearance applications to borrowers with past-due balances — potentially suggesting forbearance was the borrower’s only option.

What can you do?

If you’ve considered putting your own student loans in forbearance to avoid defaulting (or if you’ve been led to believe that forbearance is your only option), you should know you may have other options that might be better for your financial situation. The Department of Education’s Federal Student Aid website offers information on various options for managing repayment of your federal student loans.

Here are a few other strategies to explore that may also help make your debt more manageable.

  • Make more than the minimum payment. When possible, try and pay more than the minimum payment on your monthly student loan bill. The faster you pay down your loans, the less interest you’ll pay. Even paying an extra $20 a month may have a real effect on your interest costs. 
  • Consolidate and refinance. Consider refinancing and consolidating your loans with a lender with lower interest rates. Not only can this lower your interest costs, but it could help you keep your sanity if you have multiple student loans. You may even be able to consolidate your federal student loans. 
  • Pursue a job with loan forgiveness. Some employers — namely those in teaching and public service — offer student loan forgiveness to qualifying employees. This money is typically awarded after meeting certain requirements and may cover part or all of your loans.

About the author: Andrew Kunesh is a finance and technology writer from Chicago. He’s passionate about helping others maximize their money and purchases. When he’s not writing, you’ll find Andrew travelin… Read more.

Highest-earning parents least hopeful for their college students’ financial futures, survey finds

More than half of the class of ’18 has high hopes for their financial futures.

And so do their parents. According to a recent Credit Karma/Qualtrics survey of more than 1,000 graduating college seniors and parents of college seniors, 57% of the students said they feel ready to be financially independent and 67% of the parents said they feel their children are ready to be financially independent once they graduate.

When it comes to parents, higher income doesn’t necessarily translate to higher hopes in their child’s financial future, the survey found. Despite the generally rosy outlook held by parents, only 66% of parents with household annual incomes greater than $150,000 reported a high degree of confidence, compared with an average 75% of parents who make less than $150,000 a year. (Learn more about our methodology.)

The survey also found even more evidence of a divide when it comes to the daily realities faced by some graduating seniors: 20% of the college seniors said they’ve gone hungry, and 17% said they had to move back home because of a lack of funds.

Key survey findings

57% of graduating seniors feel ready for financial independence after graduation. And parents of graduating seniors are even more confident about their children’s futures. Sixty-seven percent feel their child is “probably” or “definitely” ready for financial independence after graduation.
On average, 75% of parents who make less than $150,000 a year reported being “very” or “extremely” confident in their graduate’s 10-year financial futures, compared with only 66% of parents who make $150,000 or more annually.
Parents are also more optimistic about graduates’ long-term financial prospects than the students themselves. More than half (51%) are confident their children’s generation will do better financially than their generation. Only 45% of graduating seniors feel the same.
Of graduating seniors, those majoring in political science/government and engineering were most likely to report feeling “very” or “extremely” confident in their long-term financial futures (92% and 90%, respectively). That’s compared with only 50% of those with majors in arts and performing arts.
81% of graduates feel their parents did all they could to prepare them for financial independence. Ninety-one percent of parents think they did all they could.
Some graduating seniors also experienced hardships due to a lack of money. Twenty percent say they went hungry, 5% say they were temporarily homeless and 17% moved back home.

Confidence in long-term financial success may hinge on students’ majors, but less so on parents’ income

Overall, graduating seniors surveyed tended to feel confident about their financial futures. But the responses varied depending on the graduate’s major.

The most confident seniors are those who are graduating with a degree in political science/government (92%), engineering (90%) or teaching/education (86%). On the other end of the spectrum, only 50% of seniors who will have an arts/performing arts degree feel confident about their financial future.

Major Reported being “very” or “extremely” confident in their 10-year financial future
Political science/government 92%
Engineering 90%
Teaching/education 86%
Computer science 77%
Physical sciences (biology, chemistry, physics, etc. 77%
Nursing/health professions 75%
Business/economics/finance 74%
Social sciences (anthropology, sociology, psychology, etc.) 72%
Other 57%
Liberal arts/humanities (English, comparative literature, languages, history) 55%
Arts/performing arts 50%

 

These attitudes may reflect the reality of graduates’ career prospects. PayScale’s 2017-2018 College Salary Report ranks majors based on average midcareer salaries. Five of the top 10 majors are engineering degrees, while humanities and liberal arts are in the mid-300s (out of 489 total). Fine arts is tied with writing at 398.

The Credit Karma/Qualtrics survey also found that parents’ positive attitudes toward their children’s financial prospects are not necessarily tied to being in a higher income bracket.

When asked how confident they were in their graduate’s 10-year financial future, 75% of surveyed parents who make less than $150,000 per year in household income reported being “very” or “extremely” confident. That’s compared with only 66% of parents who make $150,000 or more per year.

Income bracket Reported being “very” or “extremely” confident in child’s 10-year financial future
Less than $25,000 72%
$25,000 – $49,999 72%
$50,000 – $99,999 76%
$100,000 – $149,999 80%
$150,000 or more 66%

 

What’s more, the survey found that parents who fell into the highest earnings bracket were less likely than parents in any other income group to report feeling their children were ready to be financially independent after graduation.

Income bracket Reported child is “probably” or “definitely” ready to be financially independent after graduation
Less than $25,000 67%
$25,000 – $49,999 66%
$50,000 – $99,999 68%
$100,000 – $149,999 72%
$150,000 or more 53%

 

According to a study from The Pew Charitable Trusts and the Russell Sage Foundation, children raised in high-income families can anticipate higher incomes later in life. It appears wealthier parents may not agree.

A tale of two financial situations

Many graduating seniors and parents of graduating seniors have a positive outlook when it comes to the students’ financial outlook. However, the survey found signs of a deep divide in students’ current financial situations.

The split is most evident during students’ time at school:

  • 20% of graduating seniors say they went hungry because of a lack of money.
  • 5% were temporarily homeless.
  • 10% had their power turned off.
  • 17% moved in with a relative while they were in school because of a lack of funds.

There’s a split when it comes to debt as well:

  • 21% of students say they’ll graduate without any student loan debt.
  • 34% of students borrowed at least $25,000.
  • 23% of students think it will take them 10 to 20 years to pay off their student loans.

Student loan debt could affect graduates’ next steps. While 57% of seniors surveyed feel ready to be financially independent, 31% of seniors say they plan to live with a parent or relative after graduation.

The debt may also have deeper implications for other important financial and personal decisions. According to American Student Assistance’s “Life Delayed” report from 2015, a majority of student loan borrowers said their loans affected their ability or decision to buy a car, save for retirement, buy a home or start a small business. Twenty-one percent said their student debt has affected their decision to get married, and 28% said they’ve delayed starting a family.


Tips for new graduates

Learning doesn’t end with graduation, and many people’s financial lives only get more complicated as they enter the workforce, become responsible for new bills and start a family. Here are a few money tips for new graduates who want to get a head start on their financial success.

Set new house rules

Graduating seniors who are moving back home may fall into old routines unless there’s a change in expectations. Each family’s situation is different, and sitting down together to create a game plan for how and when the child will move back out can be a good way to start. Some parents also change the rules by charging rent and requiring children to do extra chores to create a more “real world” environment.

Create a budget

If you had a budget during college, keep it up. If you didn’t, it’s a great time to find a budgeting system that works for you. Getting a handle on your income and expenses can be especially important as you’ll likely encounter unexpected bills during your first years out of college.  

Build an emergency fund

Part of being financially independent can be having the means to take care of yourself when the unexpected happens. Building up an emergency fund that you can use in case your car breaks down, your computer gets stolen, you get injured or some kind of disaster strikes is an important first step.

Learn about and start building credit

Your credit can affect your ability to rent an apartment, take out a loan, open a credit card and refinance your student loans. Learning what influences your credit scores and taking actions to build good credit may help you qualify for better rates and terms.

Continue your financial education

There are many financial products and services that you may want to take time to understand. These may include learning about investing and how a 401(k) works, looking into renters insurance and finding new bank accounts or credit cards that better suit your post-graduate lifestyle.


Methodology

Generated by Credit Karma, the April 2018 study collected responses via an online Qualtrics survey from 1,000 consumers: 500 are college students who plan to receive their undergraduate degree in 2018, and 500 are the parent of a college student who plans to receive his/her undergraduate degree in 2018. All are between the ages of 18 and 72 and live in the U.S. All percentages have been rounded to the nearest whole percent.


About the author: Louis DeNicola is a personal finance writer and has written for American Express, Discover and Nova Credit. In addition to being a contributing writer at Credit Karma, you can find his w… Read more.

Removal of tax liens could mean a jump for your credit scores

On April 16, some consumers waking up to check their credit may have been in for a pleasant surprise — credit scores may have increased overnight.

As CNBC reports, improved standards in how the three major national consumer credit bureaus — TransUnion, Equifax and Experian — look at new and existing public records could mean higher scores for some. All three bureaus are removing all tax liens from consumers’ credit reports.

In July 2017, the three major credit bureaus estimated that about half of all tax liens and nearly all civil judgments had been removed from consumers’ credit reports. Now the remaining tax lien data is being removed.

Both actions are part of the National Consumer Assistance Plan, which is a result of an agreement between the three major credit bureaus and 31 state attorneys general reached in 2015.

The NCAP includes a series of actions and policy changes that are intended to improve credit reporting data accuracy, quality and consumer credit education.


What does this mean for you?

Tax liens and civil judgments on your credit reports could lower your credit scores, so the removal of this information from credit reports could lead to an increase in some people’s credit scores — but not for everyone.

As of 2017, TransUnion and Equifax found that about 9% of people in the national consumer credit databases had either a tax lien or judgment reported on their credit file.

Based on those numbers, about 19.8 million people may now see their scores increase as a result of the changes.

Why should you care?

If you’ve never had a civil judgment or tax lien on your credit reports, this news probably won’t affect you.

But if tax liens on your public records have dragged your credit scores down in the past, this news could mean good things for your credit reports and credit scores.

It’s important to note that lenders may still consider tax liens and civil judgments — even as the major credit bureaus move away from them.

This may be particularly true for consumers trying to get a mortgage. Mortgage lenders may want to see this information when reviewing an application, and they could have a means of getting it from sources other than your credit reports.

For example, LexisNexis Risk Solutions — an aggregator and seller of information that commercial organizations, government agencies and nonprofits use to evaluate individuals, businesses and assets — now offers a LexisNexis RiskView Liens & Judgments Report, which was created specifically to fill in the tax lien and judgment information for lenders.


Bottom line

The recent action may stack on top of any impact consumers saw last July, giving some consumers a modest boost to their credit scores.

This additional score boost may come as a welcome event to consumers whose scores may have been weighed down by a tax lien.


About the author: Brian Spychalski is a former Credit Karma freelance contributor now based in San Francisco. He has a background in corporate finance and a deep knowledge of the consumer credit market. W… Read more.

Student loan debt growing among older Americans

The pathway toward retirement may be a lot more treacherous than older Americans would like to admit. And for many, one of the main culprits goes all the way back to the college years.

According to new data from the U.S. Department of Education, student loan debt for people aged 50 and older has risen precipitously over the past year. Between the second quarter of fiscal year 2017 and the first quarter of fiscal year 2018, Americans aged 50 and older saw their student loan bill increase by about $18 billion.

A report released in 2017 by the Consumer Financial Protection Bureau seems to confirm that older Americans’ student loan debt has increased at alarming rates over the last decade. It says that consumers aged 60 and older are the fastest growing age segment of the student loan market.

Putting two and two together, this means many people who should be thinking about their retirement plans may instead be contending with large amounts of student loan debt.

That sounds like a bad recipe for a happy retirement.


Why do so many older Americans have increasing student loan balances?

The growing student loan debt for older Americans may be related to a number of factors.

According to the CFPB’s 2017 report, older Americans have a host of financial responsibilities. For one, many older Americans carry other types of debt in addition to student loan debt, such as mortgages, auto loans and credit card debt. Dealing with debt in those categories can make it more difficult to focus on paying down student loan balances.

And make no mistake about it — older Americans don’t just carry student debt related to their own education. As the cost of going to college has skyrocketed, a growing number of parents (and grandparents, too) have taken on student loan debt to finance their children’s education.

Although not addressed in the CFPB report, there could be borrowers who simply enrolled in higher education later in life. This group may include those who return to school to further their education with an advanced degree or learn new skills for a career change. With potentially less time spent in the workforce to recoup the cost of that investment, they may struggle to pay off loans until much later in life.

So what?

The CFPB and other organizations have reported some alarming issues when it comes to older Americans carrying student loan debt.

The CFPB reports that among heads of household ages 50 to 59, those saddled with student loan debt have saved less for retirement than those without any outstanding student debt.

That may sound somewhat obvious, but it can have serious repercussions that extend beyond retirement. Older Americans who struggle to pay off student debt may also struggle to find the money for the most basic necessities.

For example, a recent survey by NORC at the University of Chicago and West Health Institute showed that baby boomers and Gen Xers would skip medical care because of the cost.

It seems clear that student loan debt isn’t just a siloed issue among a few older Americans. And it might not just affect those on the cusp of retirement (or already retired). It may also trickle down to affect those who become their caretakers later in life, such as adult children and grandchildren.

What can you do?

In light of what could be at stake, it might be a good time for families to come together and talk about how student loans can be handled better.

Here are some suggestions for getting the conversation started:

  • If your parent or grandparent has taken out a student loan on your behalf, check in with them. This can help you find out how they’re faring with the payments.
  • If you’re an older American with student debt, speak up. If you have outstanding loans because of your children or grandchildren, it’s OK to let someone know you might need help — either with payments or understanding your payment options.
  • If you’re a parent, have the money conversation with your parent (or child) as soon as possible. Find out if the loan burden can be shared or if there are payment options that can help take the sting out of higher loan balances. After all, if someone’s financial security, well-being and quality of life are at stake, it’s better to be proactive.

About the author: Aja McClanahan is a Chicago-based writer and blogger who covers topics on personal finance and entrepreneurship. She holds a bachelor’s degree in economics and Spanish from the Universit… Read more.

Millennials more likely to save tax-cut windfall than Gen Xers

According to CNBC, despite millennials having a bad rap for finances, a recent Bank of America Merrill Lynch survey shows millennials may have more-prudent plans for their tax-cut savings compared to Gen Xers.

Instead of spending the extra cash they might be getting after February’s tax cuts, the survey reports 17% of millennials surveyed are planning to use it to pay down debt, 8% will invest the money, and 20% are going to save it. In contrast, only 8% said that they plan on using the money for day-to-day spending.

Compare that to Gen Xers surveyed, who reported being 3% more likely than millennials to spend their tax cut on day-to-day purchases, 2% less likely to save their tax-cut money and 2% less likely to use it to pay down debt.


What does this actually mean?

U.S. Treasury Secretary Steven T. Mnuchin estimated that about 90% of all American workers would see a bump in take-home pay after the changes to the tax code went into effect in February. The recent Bank of America Merrill Lynch report suggests millennials are more likely than their Gen X counterparts to save or invest the additional money.

This may be because millennials tend to have better money habits in general. A 2017 study by Bank of America indicates that even before the tax cuts, millennials were as good, if not better, at saving money than older generations. The study shows 57% of millennials surveyed had a savings goal and 54% were budgeting their money. Even better, 47% of millennials had $15,000 or more in savings.

This is an interesting contrast, particularly when thinking about some of the financial burdens millennials face. For example, a study by RentCafe citing U.S. Census data uncovered that millennials pay a whopping $92,600, on average, in total rent payments by the time they hit 30.

Why should you care?

For many, these additional tax savings have been substantial. According to NPR, with information provided by the Tax Policy Center, the average American worker making $75,000 to $100,000 a year would see an average boost of $1,310 annually. If you’re seeing similar gains, consider joining the millennials saving, investing and using that money to pay down debt.

In terms of the economy at large, Wall Street may have mixed feelings on millennials choosing to save their tax cuts.

On one hand, millennials choosing to save that money may decrease Wall Street’s hope for a consumer spending boom. The Street notes that Best Buy and Kohl’s stock prices have been up this year on the expectation of consumers spending their increased take-home pay. So news of increased saving by millennials may very well be a disappointment to these, and similar, brands.

However, as noted earlier, 8% of millennials are planning on investing their extra take-home pay. This can put more money into the stock market and may help fuel the uptick we’ve seen there over the past year.

What can you do?

Wondering what to do with your extra tax-cut cash and tax refund this year? Here are a few ways to help maximize your increased take-home pay in 2018.

  • Pay down high-interest debt. First thing’s first: think about paying down your high-interest debt. This can include things like personal loans, credit cards and payday loans. Paying down these debts can save you money on interest in the long run — probably more so than if you put your money into a savings account and kept paying the minimum payments on your high-interest card.
  • Create an emergency fund. Consider starting an emergency fund that’s large enough to sustain you and your family for 3–6 months if you were to lose your job or hit a significant financial roadblock. This can give you peace of mind and help ensure financial stability during difficult times. Consider storing these funds in a certificate of deposit or other FDIC-backed, financial tool — with the reassurance of knowing the standard FDIC-insured amount is $250,000 per person, per bank, per ownership category.
  • Consider investing. There are a number of high and low-risk ways to invest your money. While the stock market may not be for everyone, do your research to decide if a mutual fund, money market account, or even a smart-investment app like Wealthfront® or Betterment®, could be the right investment tool for you.

About the author: Andrew Kunesh is a finance and technology writer from Chicago. He’s passionate about helping others maximize their money and purchases. When he’s not writing, you’ll find Andrew travelin… Read more.

Stores may punish shoppers for too many returns

Some popular retailers are tracking and monitoring customer sales data through a third-party service. Their goal? To identify problematic shoppers they suspect of fraud or return abuse.

As the Wall Street Journal reports, major retailers, such as Best Buy, The Home Depot and Victoria’s Secret, have hired a third-party service, The Retail Equation, to mine their return data and flag certain customers.

The Retail Equation wouldn’t reveal the full list of stores it works with to the Wall Street Journal, but Business Insider compiled a list that features such big-name retailers as CVS Pharmacy, Sephora, Dick’s Sporting Goods and JCPenney, as well as the three mentioned above.

Consumers may be unhappy to learn that their returns are being tracked and their overall return behavior scored for risk, but The Retail Equation frames its service as a necessary measure to combat return fraud and abuse. The service’s website describes fraudulent and abusive returns in the U.S. as a “$9–17 billion per year problem for retailers.”

Still, that hasn’t stopped consumers from voicing their displeasure across social media and other outlets. Some have claimed they’ve been unfairly targeted and punished, even though they weren’t doing anything wrong.


What does this mean for you?

If you’ve shopped at one of the 34,000 stores that could be using The Retail Equation, your data may be in the service’s database, which means you may have a risk score.

The Retail Equation collects shopping information from individual retailers (though it denies sharing personal consumer data between retailers).

The service may then “review the returns, look for suspicious situations, and issue approvals, warnings or denials,” claims Tom Rittman, a marketing VP at Appriss Inc., the firm that acquired The Retail Equation in 2015.

So how do you know if you’re at risk of being scored and identified as a “suspicious” shopper?

Unfortunately, there seems to be little or no indication that you’re on the verge of being identified as a problematic shopper. The specific actions that flag you as suspicious — and the retailer’s resulting measures — vary by retailer and might not be disclosed in their return policies.

Why should you care?

When you make a return at certain stores, details about your identity and shopping visit may be transmitted to The Retail Equation. Best Buy, for example, uses The Retail Equation to assess all returns, even those made with a receipt.

If your risk score, which can be negatively impacted by factors such as making too many returns in a short period of time, surpasses a certain threshold, your next return may be refused. The store’s standard return policy may not apply for you — not necessarily because your returns have been fraudulent or abusive, but simply because your “return history is often associated with such behavior” says The Retail Equation’s website.

What can you do?

We’ve all been there — buying something, and then getting home and figuring out you don’t really need it or it’s not going to work for you.

Not a problem, because you can just return it, right? Well, that may not be the case if your purchase is with a retailer that’s cracking down on shoppers they suspect of making fraudulent returns or abusing their return policy.

Rather than feel powerless, here are some actions you can take today.

  • Request your report. Consumers can go to The Retail Equation’s website and request a copy of their return activity report. However, the report doesn’t list your actual score or other specifics about your standing with retailers.
  • Check the return policy first. While this isn’t always the case, some retailers may include information about tracking in their return policy. It doesn’t hurt to reach out to customer service for clarification.
  • Look into your credit card’s return protection. Some credit card companies, such as American Express, offer return protection that could protect you from unfair or strict merchant policies. In the case of American Express, if you try to return an eligible item within 90 days from the date of purchase and the merchant won’t take it back, American Express may refund the full purchase price (excluding shipping and handling) up to $300 per item (up to a maximum of $1,000 per calendar year, per card account). Other credit card companies may offer similar protections. Always check your card’s terms and conditions before making a purchase you may regret.

About the author: Brian Spychalski is a former Credit Karma freelance contributor now based in San Francisco. He has a background in corporate finance and a deep knowledge of the consumer credit market. W… Read more.

Nearly 40% of millennials overspend to keep up with friends

A lot of millennials overspend to keep up with their friends.

A Credit Karma/Qualtrics study of 1,045 U.S. consumers found nearly 40% of millennials have spent money they didn’t have and gone into debt to keep up with their peers.

What’s more, they’re afraid to admit it.

When a friend suggests doing something they can’t afford, 27% of millennials feel uncomfortable saying “no.” And out of the 39% of millennials who’ve gone into debt to keep up with their friends, nearly three-quarters (73%) have kept it a secret.

What they may not realize is that some of their friends may feel the same way. Two-thirds of millennials regret spending more on social situations than they had planned, and one-third (36%) doubt they’ll be able to sustain this lifestyle for another year without going into debt.This is especially concerning given that millennial Credit Karma members in the U.S. who have debt already have $46,713 in debt on average. (Learn more about our methodology).

This fear of missing out on something special with their friends is compelling young Americans to pay for things they can’t afford.

At Credit Karma, we have some ideas to help curb fear-of-missing-out (FOMO) spending, but first, let’s take a closer look at the key findings of the survey.

Key findings

39% of respondents spent money they didn’t have to keep up with their friends.
73% of those who went into debt to keep up with their friends typically keep it a secret from their friends.
27% of respondents don’t feel comfortable saying “no” when one of their friends suggests an activity they can’t afford.
Two-thirds of respondents feel buyer’s remorse after spending more than they had planned to on a social situation that they later regret.
36% of respondents doubt they can keep up with their friends for another year without going into debt.

What is FOMO spending?

FOMO spending can happen when you give in to peer pressure to buy something you can’t afford — because you’re afraid of missing out on quality time with your friends or a once-in-a-lifetime experience.

According to Stephanie Tully, a professor of marketing at the University of Southern California, American consumers’ purchasing habits have moved toward spending — and sometimes, overspending — on experiences.

Our study found that millennials often feel pressure to spend money they don’t have on travel, music festivals, weddings, sporting events or social activities such as dinner and drinks with friends.

What do millennials spend on because they’re afraid to miss out?

Millennials are most likely to spend money they don’t have on special experiences.

  • Going out with friends and having a good time is one of the top types of FOMO spending. Of the millennials who responded said they spend money they don’t have to keep up with their friends, nearly 60% buy food, while one-third buy alcohol.
  • Twenty-one percent of millennials admit they feel pressured to spend money they don’t have for parties or nightlife.
  • Four out of 10 millennials who overspent to keep up with their friends made travel purchases. That could include a two-week vacation, a weekend trip with their significant other or a trip to attend a friend’s wedding.
  • One-quarter of millennials who have spent too much to keep up with their friends purchased tickets to a music event, while 17 percent attended a sporting event.

But it’s not all about experiences. Many millennials feel pressured to buy items such as clothes (41%), electronics (26%), jewelry (18%) and cars (16%) even when they can’t afford them.

How often do millennials overspend to keep up?

The good news: Credit Karma found that more than half of millennials who responded seem to have their FOMO spending habits under control.

  • Fifty-three percent of millennials say they make purchases they can’t afford to keep up with their friends no more than once a year, while one-quarter of respondents say they never make FOMO purchases.

But there’s room for improvement.

  • One-quarter of millennials FOMO spend several times each year, while 21% of respondents admit to making these purchases at least once a month.

How much do millennials spend?

Credit Karma also looked at how much young Americans typically spend each weekend when they’re hanging out with their friends:

Amount spent over the weekend  % of respondents
$100 or less 69%
$101 to $250 15%
More than $250 16%
More than $500 7%

 

These responses don’t account for differences in the cost of living across the country. So while $100 might be a lot to spend in some areas, it doesn’t go as far in other places.

According to Expatistan’s cost of living index, a fancy dinner for two would cost $119 in New York City compared to only $74 in St. Louis. And a cocktail out on the town would cost $16 in New York City but only $8 in St. Louis.

Why do millennials feel pressured to overspend to keep up?

Although many different people can make millennials feel pressured to spend money they don’t have — friends, significant others, family members, coworkers — the compulsion to overspend often stems from social anxiety.

  • 36% spend money they don’t have because they’re afraid they won’t be included in a future activity if they don’t.
  • 27% don’t want to feel like an outsider.
  • 26% don’t want to lose friends.
  • 23% don’t want to be judged.

Tips to avoid FOMO spending

Credit Karma found that 78% of millennials who responded have a budget, but one-fifth of them go over their budget on a monthly basis to keep up with their friends.

So here are a few ideas to help you stick to your goals.

Be honest with your friends

There’s no reason to be ashamed of being unable to afford a night out or a pricey vacation.

As we mentioned earlier, nearly three-quarters of millennials who overspend report keeping this a secret from their friends. But by being honest with your friends, you might be surprised to learn they feel the same way as you.

So if you feel as if your spending is spinning out of control, talk to your friends about it and find ways to avoid FOMO spending together.

Suggest free alternatives

Not spending money doesn’t equal being a party pooper.

If you’re afraid to kill the mood when your friend invites you to do something you can’t afford, suggest something free you could do instead.

There are tons of free and cheap activities you could suggest as alternatives, from hosting a potluck with friends (instead of eating out) to inviting them over to your place to watch Netflix instead of going to the movies. You could even plan a money-free weekend.

Limit your card use

We recommend that you leave your credit cards at home when you hang out with your friends. More than half of millennials use credit cards to pay for their FOMO spending.

But if you can’t afford to pay your credit card bill in full and on time each month, you could be hit with expensive interest charges that add up over time. Carrying a balance could also affect your credit scores.

It will be easier to stick to your budget if you only carry cash. When you run out of money, you know it’s time to go home.


Methodology

On behalf of Credit Karma, Qualtrics conducted an online survey of 1,045 U.S. consumers between the ages of 18 and 34 during February and March 2018.

To calculate the average amount of debt for millennial Credit Karma members, Credit Karma analyzed total debt across its U.S. millennial members for March 2018 and divided that amount by the total number of U.S. millennial Credit Karma members for the same month.


About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.

Boomers and Gen Xers skipping medical care because of high costs

When most people get sick, they go to the doctor. But rising medical costs are beginning to make doctor visits feel like a luxury for many baby boomers and Gen Xers.

A new survey by NORC at the University of Chicago and West Health Institute shows that 40% of Americans who responded admit to skipping a recommended medical test or treatment in the previous 12 months. What’s more, 44% of respondents admit they didn’t go to a doctor when they were sick or injured.

The culprit? Steep medical costs that have made healthcare unattainable for some.

About 30% of those surveyed said they had to choose between paying for healthcare or paying for basic necessities such as food, heat or housing.

Rising medical costs have been especially hard on baby boomers and Gen Xers. In the survey, 49% of Gen Xers (ages 45 to 59) reported not going to the doctor when sick or injured, and 25% of baby boomers (ages 60+) reported skipping a recommended medical test or treatment.

Younger adults say they go without care more often than baby boomers and Gen Xers, but they may be better able to afford skipping the doctor than their older counterparts.


What does this actually mean?

Think high-priced healthcare only affects those without insurance? Think again.

In a recent statement to Forbes, Dr. Zia Agha, chief medical officer at the West Health Institute, noted that health insurance isn’t necessarily a shield against high costs.

“Eighty percent of the people we surveyed had health insurance,” he said, “so just having insurance does not make you immune to healthcare costs.”

If you’ve ever been shocked by a medical bill and stressed about how to pay it, you probably know what Agha means. And the notion that Americans pay far too much for healthcare is more widespread than you may think.

Nearly three-quarters of Americans agree that the U.S. doesn’t get good value for what the country spends on healthcare. That’s a problem, because the U.S. spends roughly twice as much per person on healthcare compared with other industrialized countries.

Why should you care?

Healthcare policy has been a contentious issue in Washington since the enactment of the Affordable Care Act in 2010. The comprehensive health care reform law sought to make health insurance more affordable for more people, but there’s still a long way to go.

In spite of widespread dissatisfaction over what the U.S. spends on healthcare, a majority of those surveyed believe Congress should vote to increase spending on Medicare (56%) and Social Security (53%).

On the other hand, only 37% want to see an increase in ACA spending.

The future of healthcare likely depends on the politicians in Congress and the White House, but nearly every American would be affected by changes in healthcare policy.

What can you do?

There’s little doubt that the high cost of healthcare is deterring people from seeking medical attention.

If you’re thinking about skipping an operation, test or other medical treatment because of the high cost, consider all your options first. You may be able to find a lower-cost alternative to traditional health insurance.

  • Consider a direct primary care membership. Think of a direct primary care membership as a health club membership for the doctor’s office. Members pay a monthly, quarterly or annual fee to a specific healthcare entity in exchange for fully or mostly covered primary care services, including access to clinical, laboratory and consultative services. Note that some services are not covered by the fee, and you may want to look into an additional policy for emergencies.
  • Check the healthcare marketplace. Look into the HealthCare.gov marketplace and see which health insurance plans you’re eligible for. The website also provides resources for paying premiums and reducing out-of-pocket costs.
  • Weigh the pros and cons of a high-deductible policy. If you’re young and don’t expect to use your health insurance often, a high-deductible policy may be your best bet. These policies have lower monthly premiums than standard health insurance but come with higher deductibles when seeking care, so you’ll pay more out of pocket throughout the year before your insurance kicks in.

About the author: Andrew Kunesh is a finance and technology writer from Chicago. He’s passionate about helping others maximize their money and purchases. When he’s not writing, you’ll find Andrew travelin… Read more.

Millennials spend nearly $100,000 on rent before they turn 30

Renting may present fewer hassles and commitments than buying, but it still costs millennials a huge chunk of their paycheck.

According to a new study by RentCafe, millennials shell out an average of $92,600 in total rent payments by the time they turn 30.

Citing U.S. Census data on total income and total rent paid for an eight-year period, the study found that millennials spend as much as 45% of their income on rent between the ages of 22 and 30.

That’s significantly more than what Baby Boomers (36%) and Gen Xers (41%) spent on rent relative to their income when they were the same age. (Interestingly, all three generations violate the decades-old rule-of-thumb that you shouldn’t spend more than 30% of your income on housing — perhaps a sign that the “rule” could benefit from a caveat or two.)

One potential explanation for millennials’ high rent burden is that they’re less likely to buy homes than previous generations.

Millennials grapple with financial factors that didn’t affect previous generations, including coming of age in a recession and higher student loan debt. This makes it difficult to afford a down payment for a mortgage.

Add that to millennials’ preference for living in cities — where rent and amenities tend to be more expensive — and you have the recipe for a huge rent burden.


What does this mean for you?

If you’re a millennial paying rent every month, you probably don’t need a study to understand the effects on your bank account.

Still, it’s worth examining the overall impact that high rent costs can have on a young person’s life.

The more income that rent takes up, the less money left over for saving, investing and paying off debt. That could translate to higher interest costs on your credit cards and student loans — not to mention a longer timeline for retirement.

Even today, we’re seeing the effects of a generation ill-prepared for retirement. As the Chicago Tribune reports, many Baby Boomers have scant retirement savings and plan to work long past the traditional retirement age of 65.

Why should you care?

Millennial or not, all renters could feel the pinch of rising rates in rents.

In fact, rising rents have zero regard for age or generation. Millennials may be paying more in rent over the course of their lifetimes than their generational forebears, but we’re also seeing a rise in the number intergenerational households. This trend began during the Great Recession, when adult children moved back in with their parents to make ends meet, and it doesn’t seem to be slowing down.

If rents continue to rise, more Baby Boomers may find themselves supporting their adult children. And that cycle could continue on into the next generation, as millennials struggle to reach financial milestones that help set their children up for future success.

The bottom line? Everyone may be affected by increased rent costs — though right now millennials are certainly feeling the brunt of it.

What can you do?

Perhaps the best course of action is to assess your current living situation. You may not be able to find cheaper housing, but you can take a few steps to minimize costs and set yourself up for a better future.

  • Examine your spending. If you live in a city — as many millennials do — you may spend more than you can afford on “luxuries,” such as entertainment, dining out and Uber rides. Take an honest look at your budget and see what you might be able to cut out.
  • Consider housing alternatives. Though this isn’t possible for everyone, some people may be able to save on rent by looking for housing in a more affordable neighborhood, finding a roommate (or two), or even moving in with their parents for a short period of time.
  • Develop a plan for paying off debt. Paying off debt can seem like a huge task, but it’s easier when you break it down. Start by assessing the amount you owe, then dive into the details and make a repayment plan.
  • Save in smaller ways. Saving and investing doesn’t have to feel like a burden. Apps such as Acorns let you invest your spare change by rounding up your purchases to the nearest dollar and depositing the difference into an investment account, all for a small fee.

About the author: Aja McClanahan is a Chicago-based writer and blogger who covers topics on personal finance and entrepreneurship. She holds a bachelor’s degree in economics and Spanish from the Universit… Read more.

Social networks expand crackdown on cryptocurrency ads

The Wild West days of cryptocurrency may be drawing to a close. Even as international regulators debate how to deal with virtual currencies, Twitter and other social platforms have begun to take matters into their own hands.

As Reuters reports, Twitter will ban cryptocurrency advertising on its platform starting today. This puts it in line with the likes of Facebook and Google, which announced similar measures earlier this year.

So why are these social media giants taking a stand against crypto? It’s not because they’re jealous of the hype.

As Facebook recently noted in an update to its terms, “ads must not promote financial products and services that are frequently associated with misleading or deceptive promotional practices,” such as initial coin offerings and cryptocurrency.

With so many ICOs flooding the market in recent months, it has been difficult for government regulators — much less social platforms like Twitter and Facebook — to filter out the frauds.

But that’s only half the problem. Even genuine virtual currencies are considered highly speculative, fueling concerns that potential investors who click on these types of ads may not know what they’re getting themselves into.


What does this mean for you?

Cryptocurrencies garnered massive attention in 2017, when the price of bitcoin surged from around $1,000 near the beginning of the year to a peak of nearly $20,000 in December. Perhaps you joined the rush and invested in bitcoin last year — in which case you should already be thinking about how that investment will affect your taxes.

But there are additional concerns when it comes to cryptocurrency, some more serious than others.

For one, cryptocurrencies aren’t quite regulated like traditional currencies are, with regulations varying (not all countries guarantee cryptocurrency price or attempt to manage value). The G20 — a group of nations that represents the world’s 20 largest economies — met last week and discussed, along with other regulators and policymakers, how to supervise cryptocurrencies, but no consensus was reached.

“There are many companies who are advertising binary options, ICOs and cryptocurrencies that are not currently operating in good faith.”

Rob Leathern, Facebook Product Management Director

Additionally, cryptocurrencies are generally set up to help ensure participants’ anonymity — which lends itself to potentially illegal activity and transactions.

The lack of joint regulations means that cryptocurrency may present a fertile ground for fraudsters. Twitter, Facebook and Google all seem to have recognized this and have changed their policies in the interest of protecting users.

“We want people to continue to discover and learn about new products and services through Facebook ads without fear of scams or deception,” Facebook Product Management Director Rob Leathern wrote in a blog post announcing the company’s new ad policy. “That said, there are many companies who are advertising binary options, ICOs and cryptocurrencies that are not currently operating in good faith.”

Why should you care?

If you haven’t yet invested in cryptocurrency and are considering it, this should serve as another important reminder of how risky such an investment can be.

Twitter’s announcement of its ban has already unleashed some wild price fluctuations, with the price of bitcoin falling nearly 7% on Coinbase on Monday, March 26.

This highlights the big risks associated with any investments you make in cryptocurrency. With that kind of volatility, it’s important to know that investing in cryptocurrency of any kind may be more of a gamble than other investments. And as with any investment, make sure you’re not putting up more than you can afford to lose.

As we mentioned above, any transaction you make in cryptocurrency can have tax implications, too.

What can you do?

It can be easy to get caught up in the whirlwind of news surrounding cryptocurrency. But no matter what your best friend keeps telling you, cryptocurrency is a risky investment that calls for some careful research.

Before getting involved in cryptocurrency, take some steps to further educate yourself — both about how investing works and the intricacies of cryptocurrency.

Still confused about what cryptocurrency is? Check out this crash course on the basics of crypto in this video from “Last Week Tonight with John Oliver.” It’s a fairly thorough answer, with a dash of humor for good measure.


About the author: Brian Spychalski is a former Credit Karma freelance contributor now based in San Francisco. He has a background in corporate finance and a deep knowledge of the consumer credit market. W… Read more.