11A — Sunday, July 21, 2013
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THE WEEKLY GUIDE TO MANAGING YOUR MONEY
Big Money Mistakes You Could Be Making Right Now BY VERONICA DAGHER
Overspending Ms. Ward worked with a young woman who wanted a relationship but had “deep pain” from her childhood around trusting others. Most of the woman’s evenings after work were spent wandering through stores shopping for clothes she didn’t need, recalls Ms. Ward. When she came to see Ms. Ward, she wanted to get out of debt and manage her money. During therapy she uncovered the connection between her fear and loneliness and the overspending. Overspending usually is related to the management of emotional pain, distorted beliefs about what people feel they deserve and a disconnection between the impulse to buy and the actual results of the purchase, says Ms. Ward. “Many overspenders don’t need what they buy—they just feel they have to buy it,” she says. Financial planner Timothy McGrath has seen many clients
Do you have chronic money problems? Spend too much? Give too much to your good-for-nothing kids? Keep putting off writing or updating your will? Maybe it’s all in your head. Really. Financial advisers and therapists have identified a number of psychologically-based mistakes people make with their money. “How you feel is how you deal…with money, that is,” says New York psychotherapist Karol Ward, whose six-figure clients help other people make money but find it difficult to hold on to their own. Here are a few of the most common psychological problems people have with their finances—and what you can do about them: overspend because they want to live a similar lifestyle to their neighbors or co-workers, while not recognizing that everyone’s financial circumstances are different. “Clients often don’t realize how purchases outside of their means will impact long-term planning,” says Mr. McGrath in Chicago. Once clients are aware of their behavior they can work to change it, says Ms. Ward. Before buying, people might ask themselves “What am I really feeling?” or “Why do I want to buy this?” she says. Marty Martin, a financial psychologist in Chicago, advises clients who feel the need to spend, but are in a heightened emotional state, to wait to make a decision. “Collect yourself by distracting yourself by meditating, praying, engaging in some physical activity or doing something other than making a money decision,” he says.
INVESTOR’S CALENDAR THIS WEEK Buyout Vote: After a postponement, Dell plans to hold Wednesday a shareholder vote on the company’s proposed $24.4 billion buyout by founder and chief executive Michael Dell and private-equity firm Silver Lake. On Trial: The civil trial of former Goldman Sachs Group executive Fabrice Tourre continues this week in New York. Senate Hearing: The U.S. Senate Special Committee on Aging is slated to hold a hearing on Wednesday to look at payday loans. Earnings: McDonald’s, 3M, United Parcel Service, Apple, Ford Motor, Boeing, Dow Chemical and Amazon.com are among those reporting. Wall Street Journal Sunday writers regularly contribute to the Journal’s weekday “Your Money Matters” personalfinance podcast. Listen at WSJ.com/Podcasts Economic Indicators: June’s existing-home sales are released Monday and newhome sales come out Wednesday; durable-goods orders for the month are due out Thursday; consumer-sentiment figures for July are expected Friday.
LAST WEEK Fed Testimony: Federal Reserve Chairman Ben Bernanke told Congress that the central bank’s schedule for pulling back on its bond-buying program isn’t on a “preset course” and could be delayed if the economy weakens.
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Enabling Financial enabling is a common trap for parents who want to help their adult children who are in chronic financial trouble, says Brad Klontz, a Lihue, Hawaii, financial psychologist. Mr. Klontz worked with a 75year-old woman who had given her 52-year-old son a total of $150,000 over five years for various business ventures, all of which were ill-conceived and failed. She was having trouble saying “no” when the son asked for another $50,000, even though her own financial security was at risk as her savings were dwindling. “Money for doing nothing creates more doing nothing,” says Mr. Klontz. Laura Scharr-Bykowsky has seen many grandparents rack up large amounts of credit-card debt and give away the last of their savings to fund their grandchildren’s tuition or vacations. They may have a desire to spoil their children or grandchil-
dren, want to get their attention, don’t want to renege on a promise they made when they were in a better financial situation or feel guilty for not seeing them more, says Ms. Scharr-Bykowsky, a financial planner in Columbia, S.C. If enabling has been going on for years, it can be difficult to stop doing it “cold turkey,” says Mr. Klontz. For enablers, it can be important to recognize that their efforts to help backfired or have been reinforcing dependence. Mr. Klontz says it’s also important to set up a timeline to withdraw financial support, say, in six months, and perhaps explore other ways to help such as paying for a financial plan, a career counselor or a therapist. Ms. Scharr-Bykowsky counsels clients to reduce support to their kids and stop altogether when they are gainfully employed. Then, she says, the parents can make gifts periodically, but only if their adult child is being financially responsible. “The most important word
they need to use is ‘no’ or else they’ll have an entitlement problem to deal with,” says Ms. Scharr-Bykowsky.
Denying Financial planner Peg Eddy has seen several clients try to deny the reality of their financial situation and think everything “will all work out.” “Amazingly, some folks think there is a ‘money fairy’ that will bail them out when they reach 65 and they only have Social Security to depend on,” says the San Diego financial planner. This form of denial combined with lethargy leads to not doing any planning but potentially becoming a burden later on to any children or family they may have. She’s also seen denial take the form of people’s failures to create or update their estate plans. That happened to a man she worked with who didn’t want to update his estate plan and died suddenly at age 54. His wife and children were left struggling.
The Dow Jones Industrial Average logged the year’s 27th record close on Thursday. It’s up 18.6% in 2013.
People may not have an estate plan because they find it too upsetting to think about or they don’t know whom to name as their children’s guardians, says Lauren Lindsay, a financial planner in Covington, La. “The problem is that the state will have a plan if you don’t and it may not follow your wishes,” she says. Namely, it wouldn’t include any charitable considerations or know if there are any immediate family members who you don’t wish to be involved, she says. Often the “social taboo” around talking about money keeps family members from discussing inheritance and estate issues openly before anything happens, and while there is still a chance to hear everyone out and include them in the planning, says Mary Gresham, an Atlanta psychologist. To make this conversation easier, a person might introduce the topic by saying, “I’d like to talk about something that is hard to talk about,” so the other person knows it’s not just a casual conversation, she says. Judy Lawrence tells clients to “step up and face the numbers” of their real financial picture. That way, they can create a plan based on their true income, outline a way to gradually pay off debt and save for retirement, says the Albuquerque, N.M., financial counselor. Ms. Eddy recommends that clients accept their own mortality and plan for what happens in the event of an emergency, disability or death. They can start by having a good estate plan, update beneficiaries on their accounts and if they own a business, continue to work on their exit strategy during their lifetime. “News flash—none of us are getting out of here alive,” says Ms. Eddy.
Source: WSJ Market Data Group The Wall Street Journal
Big Bankruptcy: The city of Detroit filed for federal bankruptcy protection, making it the country’s largest-ever municipal bankruptcy case. Confirmed: Thomas Perez was confirmed as labor secretary. And Richard Cordray was approved as the head of the Consumer Financial Protection Bureau. Lawsuit: The Securities and Exchange Commission charged hedge-fund manager Steven A. Cohen with failing to supervise managers and prevent them from insider trading. Bank Profits: Citigroup’s earnings surged 42% in the second quarter. Morgan Stanley’s was up 66%. Bank of America posted a 63% jump in income. Loan Update: Senate negotiators agreed to a framework of a deal to cut the interest rate on certain new federal student loans, after the rate on new Stafford loans doubled to 6.8% on June 30.
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Student Health Plans Improve Student health-insurance plans are getting better—and pricier. Under the Affordable Care Act, the minimum annual benefits limit of such plans will jump to $500,000 for the 2013-14 school year, up from $100,000 in 2012-13. And the cap will disappear for the 2014-15 school year. Also starting next year, student plans can’t exempt preexisting conditions and will be expected to cover the same 10 essential benefits as other individual health plans, including prescription drugs, preventative services and mentalhealth care. But the plans cost more, too. Most students still stay on a parent’s plan, with about 20% to 30% choosing a university health plan. Employer plans also are becoming more expensive, however, reflecting higher premiums, steeper deductibles or both. A few things to consider: Cost. Some employers charge an additional amount for each dependent on an insurance plan, which means some parents could save money by enrolling their child in a student plan. Aetna, the largest provider of student health insurance, says its average plan costs about $1,800 a year, or about $150 a month. Next year, when most people will be required to have coverage or pay a penalty, student policies are likely to be cheaper than buying individual insurance through a healthcare exchange. Coverage. Parents should be sure their own plans are portable. Some parent plans offer coverage only within a certain region or state and might offer only urgent or emergency care to a student attending school out of state. While a student health plan should cover basic benefits, there could be exceptions. Deductibles. Since deductibles on parents’ plans can vary widely, families should weigh the financial impact of an emergency or health crisis. Deductibles for student plans generally are $200 to $300. —Karen Blumenthal The Wall Street Journal
Posted inappropriate photos/info
Had info online about drinking or using drugs
Microsoft also cut the price on the Surface RT model with twice as much memory, to $449 from $599. That version with a cover-keyboard now costs $549, down from $699. —Shira Ovide Digits Blog WSJ.com
Bad mouthed previous employer
Had poor communication skills
Made discriminatory comments related to race, gender, religion, etc.
Lied about qualiﬁcations
Stat of the Week Compromising Content: Employers are increasingly ﬁnding evidence of inappropriate behavior when vetting potential hires on social media. Percentage of managers rejecting candidates because they…
Source: CareerBuilder survey of 2,184 hiring managers and human resource professionals, conducted Feb. 11 to March 6 by Harris Interactive; margin of error +/- 2.1 percentage points. The Wall Street Journal
AT&T will begin offering wireless customers the option to forgo contracts and get more frequent upgrades if they pay full price for their smartphones. The company is beginning a program July 26 for subscribers to buy their phones using a monthly financing plan that will add payments to their monthly bills. After a year, they will be allowed to upgrade the device. Under the new option, called AT&T Next,
there are no service contracts other than the financing commitment. It is available for tablets as well. —Thomas Gryta The Wall Street Journal
Microsoft has cut the price of its Surface RT tablet by $150, or up to 30%. The software company’s websites show a price of $349 for the leastexpensive model, without a cover that doubles as a keyboard, down from $499.
The number of homes listed for sale increased by 4.3% in June to 1.9 million homes, the highest level in the past year, according to Realtor.com. Housing inventory has steadily declined over most of the past two years. Listings typically climb heading into the spring and summer, when housing activity hits a seasonal peak. But inventories appear to be posting larger-thanusual gains in many markets as they rise from their lowest levels in at least a decade. —Nick Timiraos Developments Blog WSJ.com The Aggregator, edited by Cristina Lourosa-Ricardo, features news and commentary from The Wall Street Journal and other publications. Email: email@example.com
TIP OF THE WEEK
Save for Your Holiday Shopping BY LINDSAY GELLMAN
This is not your mother’s Christmas club account. The short-term savings accounts, designed to help savers squirrel away money for holiday shopping, have been around for many decades. And consumers have traditionally started contributing to one by the summer months. But today’s versions have modern banking features and greater flexibility. And they have one thing that may be especially appealing to savers these days: a relatively decent interest rate. The interest rate is in the 1% to 2% range, says Bruce McClary, a spokesman for Clearpoint Credit Counsel-
ing Solutions, a nonprofit housing and credit-counseling agency. That’s much higher than the 0.11% national average for savings accounts, according to Bankrate.com. But that higher rate comes with a price: You typically can’t touch the money until a set date. If you do, you lose any interest earned. You can set up a Christmas club account—offered by banks, credit unions and some retailers including Sears—with a small initial deposit (it varies by provider). Most accounts allow you to set up automatic deposits from a paycheck and manage your account online. You also can typically deposit amounts of your
choice and on your own schedule. Previously, you were often required to make at least a monthly payment, says Mr. McClary. At Citizens First Bank in Wisconsin, for instance, you can open a Christmas club account with a $5 minimum balance, says Sonia Bjerkos, vice president of operations at the bank. The account pays 2.25% interest on balances up to $1,250. The bank issues the account holder a check for the balance amount around Oct. 15. Withdrawals made before that date will result in the loss of any interest accrued up until the withdrawal, Ms. Bjerkos says, but they won’t affect future interest payments on your balance.