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Biases Affecting Your Brain and Financial Decision Making, As Told By Real Vs. Imagined Crime

Crime in America is totally out of control these days, right? Every day you read about some new shooting, robbery, kidnapping etc., and the impression you get is that we live in an age where the streets are not safe and neither is your home. Some of this phenomenon is not crime-related at all. Rather, it is in part stemming from a cognitive bias our brains experience called the recency or availability bias. From Wikipedia, “The tendency to overestimate the likelihood of events with greater "availability" in memory, which can be influenced by how recent the memories are or how unusual or emotionally charged they may be.”  This bias shows may perpetrate your brain after being exposed to various emotionally charged stories and experiences. With money, for example, in the Great Recession in 2008, the recency bias may have caused you to think that the stock market is only going to continue to go down and not recover, given the recency, availability of information and media stori…
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Fed Interest Rate Increases: The Tempest in the Teapot

Anybody who was surprised that the Federal Reserve Board decided to raise its benchmark interest rate in December 2016 probably wasn’t paying attention. The U.S. economy is humming along, the stock market doing well, the unemployment rate has fallen to a low level -- now considered to be 'full employment.' We are more recently seeing evidence of increasing wages as well.

The rate rise is extremely conservative: up 0.25%, to a targeted range from 0.50% to 0.75%—which, as you can see from the accompanying chart, is just a blip compared to where the Fed had its rates ten years ago when it was north of 5%. Keep in mind the prime rate -- more commonly used in consumer finance -- is the federal funds rate plus 3%. So prime was north of 8% in 2007.



The bigger news was the announced intention to raise rates three times next year, moving to a more “normal” 3% by the end of 2019. This is faster than prior market expectations, heading into the meeting, although still somewhat conserva…

Balancing Traits

Are you ready to achieve work-life balance? The American Sociological Review has published a study showing that most of us struggle—which is a fancy word for “fail”—in this important endeavor. But there’s hope. The study also found that the minority of people who HAVE managed to achieve some form of the work/life holy grail are doing certain things well.

Like what? First, they take the time to make deliberate choices about what they want in their lives. Rather than collapse after work in front of the TV or stay at their desk through their vacation time, they create a road map of the kind of life they want to live, and how they will spend their time, and commit to this path. 

Second: they regularly communicate with important people in their lives about what’s working for them, and what isn’t. This prevents them from drifting off the work-life rails as a result of outside influences and pressures.

Third: they make sure they set aside time for family, friends and their important intere…

Don't be like Gerald

A Texas County Commissioner Gerald Daugherty is a "proven fighter for better roads, lower taxes, and responsible county spending." His wife also doesn't want him driving her crazy in retirement and is using this message to help him get re-elected. As a sign I once saw in a restaurant said, "Retirement: Half the Money and Twice The Husband."

Have a plan for retirement -- for financial and non-financial aspects -- to ensure you are fulfilled with yourself as well as your relationships. And, have a laugh at Gerald's video.

Communicable Stress (Even From The Evening News)

By all accounts, stress—and its accompanying emotional mix of frustration, anxiety and fear—are bad for your health. When you experience stress in your body, you release increased amounts of glucose from our liver into your blood, and your body produces cortisone, which is actually toxic to your system. Your heart rate goes up, sending more enriched blood to your muscles. Your immune system kicks into high gear, and you stay in this high-alert state, which is only designed to help you, combat real threats, depleting you physically.

Now, researchers have discovered that stress is contagious—that is, you can catch it from those around you, and even from the evening news.  

Researchers at the Max Planck Institute for Cognitive and Brain Sciences conducted an experiment where they gave individuals a series of very challenging arithmetic questions and interviewed them—in both cases, in order to induce direct stress. They had another group of subjects watch the test and interviews through …

Paying for College and Getting Your Money's Worth

According to the Student Loan Marketing Association (more commonly known as Sallie Mae Bank), the average tuition, room and board at a private college comes to $43,921. Public tuition for in-state students at state colleges amounted to $19,548 (about half of which is room and board), with out-of-state students paying an average of $34,031.
How are parents and students finding the cash to afford this expense?Sallie Mae breaks it down as follows: 34% from scholarships and grants that don’t have to be paid back, coming from the college itself or the state or federal government, often based on need and academic performance.Parents typically pay 29% of the total bill (an average of $7,000) out of savings or income, and other family members (think: grandparents) are paying another 5%.The students themselves are paying for 12% of the cost, on average.The rest, roughly 20% of the total, is made up of loans. The federal government’s loan program offers up to $5,500 a year for freshmen, $6,500…

Ways Money Can Most Effectively Buy Happiness

We all know that money cannot buy you happiness, right? As it turns out, this is not exactly true.

A recent study by University of Michigan economists Betsey Stevenson and Justin Wolfers, examining data from more than 150 countries using World Bank data, has shed new light on the interaction between happiness and the size of your bank account. Their first conclusion: the more money you have, the happier you tend to be, regardless of where you are on the income spectrum. They also concluded that multi-millionaires do not think of themselves as “rich.”

However, there do seem to be income levels where a person’s happiness can be increased faster than others are. Princeton University economist Angus Deaton has found that peoples’ day-to-day happiness level rises until they reach about $75,000 in income—a point where a person can comfortably afford the basic necessities of life without worrying where his or her next meal is going to come from. After that, this type of happiness level…