A reminder to be aware of financial pitfalls


National Finance Awareness Day is August 14. Although the origins of the day are unclear (tinyurl.com/5fzxx5xz), its general purpose is to encourage good financial practices.

Yet awareness means not only creating good financial habits, but also seeing potential trouble spots – ideally, before they cause financial damage.

A growing problem is debt.

The Federal Reserve Bank of New York’s Center for Microeconomic Data recently released its quarterly report on household debt and credit (tinyurl.com/55p858st), which was headlined by total household debt exceeding $16 trillion. during the second quarter of 2022. Overall, debt balances are now $2 trillion higher than at the end of 2019, before the COVID-19 pandemic took hold.

While mortgage debt ($11.39 trillion at the end of June) made up a large chunk of the total, credit card balances rose $46 billion from the first quarter to $890 billion. The 13% year-over-year increase was the largest in 20 years.

“The second quarter of 2022 showed strong increases in mortgage, auto loan and credit card balances, driven in part by rising prices,” said Joelle Scally, administrator of the Center for Microeconomic Data.

How are individual households affected? A recently published study by T. Rowe Price (tinyurl.com/yckhxrb3), a global investment management firm, found that financial stress is a predictor of financial well-being. As the study noted, “it’s probably no surprise that financial well-being and financial stress are two sides of the same coin.”

The research, which combines information from T. Rowe Price’s Annual Retirement Savings and Spending Study and his Retirement Behavior Index, found that debt, budgeting and saving were the three most common financial stressors. Fifty-eight percent of those who reported moderate-to-high financial stress had debt between $10,000 and $50,000, while 72% of those in the moderate-to-high stress category had a student loan.

If you need help managing your debt and budget, the Financial Industry Regulatory Authority, which oversees the U.S. brokerage industry, has web pages on spending and managing debt in its Personal Finance section (tinyurl.com /2ayx5f74). Consumer.gov also has resources on managing your money and credit, loans, and debts (tinyurl.com/2tb7uwyz). The Humble Dollar website, which aims to “tell you everything you need to know about money,” has a Two Minute Review section (tinyurl.com/ms7e5ekp) that can give you some insight into your situation. financial.

Another issue to be aware of is rising health care costs, especially when it comes to retirees and future retirees.

A research note (tinyurl.com/yesh2dnw) published this month by Boston College’s Center for Retirement Research examined out-of-pocket health care spending for retirees, particularly following an increase of 14, 5% for 2022 of the premium for Medicare Part B (which covers medically necessary services and preventive services), something I touched on in a recent column on inflation. (If you would like a copy of this column, please let me know at [email protected])

The CRR dossier used the 2018 Health and Retirement Study to help determine the share of Social Security benefits and overall disposable income after medical expenses, including premiums for Medicare Parts B and D, Medicare Advantage and supplemental plans.

The result? For the median retiree, only 75% of Social Security benefits and 88% of total income were “available for nonmedical expenses.” Because a considerable portion of income is spent on medical expenses, retirees’ finances “were more precarious than Social Security benefit levels would suggest,” adding that “it’s understandable that many retirees probably think that ‘It’s hard to make ends meet’.

Such concerns re-emphasize the need to be aware, as best you can, of the obstacles that exist in your path to lasting financial success, and then plan as best you can to manage those obstacles. In other words, be aware and be prepared.

Seasoned Investment Advisor and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read his latest book, “The Wise Investor: Personal Retirement Portfolio Management for Lawyers (and Their Clients))”, published by the American Bar Association. Write to Julie at [email protected] While it’s impossible to answer every question, every email is read and reviewed and may lead to discussion in a future column.


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