Managing Economic Resources Chapter 8

Stresses of Family Finances Financial issues #1 stressor across life cycle Good financial management associated with happier marriages Wealth and happiness are unrelated: As money increases—expectations increase Comparison not based on possessions but of those who have the most Money distracts from other aspects of life

Financial Management Concerns Major stressor for individuals and families Garman 2002 study: 1/3 of workers report financial stress high to the extreme hampers job performance 53% dissatisfaction with personal financial situation 54% worry about personal debt

Financial Management Strengths Happy Couples Unhappy Couples Agree on how to spend money 89% 41% No concerns about how partner spends money 80% 32% Satisfied with decision on savings 73% 29% Major debts not a problem 76% 35% Financial decisions not a problem Olson & Olson, 2000

Top Five Financial Management Issues for Married Couples Percentage with Issue Wish partner more careful spending money 72 % Having trouble saving money Problems deciding what is more important to purchase 66 % Major debts are a problem 56 % Partner tries to control the money 51 % Source: Adapted from Olson, Fye & Olson, 1999 n=21,501 couples

Coping with Financial Stress Financial stress associated with family stress and conflict Most difficult periods of family life cycle financially: Child bearing stage Adolescent stage—peak stress period Launching stage Retirement stage Coping resources and behaviors influential

Coping Resources Personal Family Social Self esteem Mastery Cohesion Adaptability Nontraditional roles Social Instrumental Emotional Informational

Coping Strategies Ineffective or Problematic Effective Reframing Finding family support Family service agencies Ineffective or Problematic Avoidance Keeping feelings to self

Why Do Finances Cause Problems? Money taboo topic of discussion Unrealistic expectations about finances No budget or adherence to budget Overspend or reliance on credit Styles of spending and saving Use of money as tool to gain power and control Conflicts over meaning of money

Meaning of Money Status Security Enjoyment Control Source of power—means of keeping ahead Security Conservative in spending—focus on saving Enjoyment Satisfaction draw from spending for self and others Control Means of control over life and maintaining independence Around & Pauker, 1987

Living in Poverty…Means Inadequate food and decent shelter Inadequate health care Limited transportation No telephone Substandard schools

Ethnic Income Differences

Family Income and Expenses Most families in the U.S. are in the middle-income range ($15-75,000 per year) Low-income < $15,000 High-income > $75,000

Distribution of Families By Income Middle Income Represents 58.9% of Families Lower Income Represents 16% of Families Upper Income Middle Income Lower Income

Family Income and Expenses Ethnic Differences Whites tend to earn more Gender Differences Males earn more Discrepancy is smaller for Blacks and Hispanic families Clear relationship between income and education

Income Discrepancy in Salary Between Men and Women Dollar Amount Men Earn Over Women at the Same Educational Level

Life Time Earnings by Degree

Family Net Worth Net worth Assets – Liabilities = Net worth Assets: Cash on hand or in savings Equity in a home Value of the family car Liabilities: Credit debt Mortgage Car loans

Managing Financial Resources Organizing and Planning: Values clarification Goal setting Resource allocating Implementing Decisions: Facilitating Checking Adjusting

Guidelines to Saving Money Don’t buy on impulse Avoid buying on credit Buy at the right time Don’t pay extra for name brand Recognize that convenience costs money Question the need to go first class Raymond & Forgue, 1997

College Years…Credit Danger 54% of freshmen students carry credit card—by sophomore year 92% Over course of college life students double credit card debt and triple number of credit cards they carry Approximately 75% used student loans to pay credit card bills 60% reached or exceeded their credit card limits during freshmen year Lazarony, 2002

Credit: Advantages & Disadvantages Enjoying it while paying for it Advantage of sales prices Convenience Emergencies Disadvantages Interest charges Overuse

Credit Overextension Credit overextension Signs of overextension a situation in which debts make repayment difficult Signs of overextension Spending more than 15% to 20% of disposable income to repay debts.

Select Signs of Credit Overextension Debt exceeds normal limits Running out of money most months Paying only the minimum balance due on bills Can’t pay all the monthly bills Borrowing to pay for things they used to purchase with cash At limit on their various lines of credit Asking for credit limit extensions Picking creditors to pay Borrowing from one source to pay another

Spending Patterns Associated with Debt Credit spending Purchases utilizing credit Crisis spending Purchases associated with unexpected life events Careless or Impulsive spending Overpaying Purchasing inferior products Purchasing unneeded items Compulsive spending Inability to refrain from purchasing