Thursday, March 29, 2012

Betting for Retirement

This week's $540 million dollar Mega Million jackpot is the biggest of any lottery in history. I just played Mega Millions. I played more out of fear than hope. I love to teach, and if I win the lottery I will continue to teach. However, most of the teachers pulled together to buy tickets for this weekend's drawing and I am afraid of being the only teacher in the school that does not win. My contribution was budgeted as an entertainment expense, but I have to wonder how many people are playing to bet for their retirement?

According to the Cleveland Federal Reserve, our national personal savings rate spent most of the decade below 4%. In a recent survey, one in four Bankrate survey respondents reported having zero emergency savings. Yet, in 2010 we spent $58 billion dollars playing the lottery. Although these numbers are concerning, there is a service some states use that mitigate the consequences of gambling and create a habit of savings.

Prize-linked savings programs (PLS) allow savings account holders the opportunity to win prizes or cash. Think of it as a lottery program that does not take your money. The winnings are not as lucrative, but the mechanics of the program reward appropriate savings behavior. D2D piloted a successful PLS program, which you can read about here. PLS programs need to be broadly provided to reinforce and reward responsible consumer behavior.

Friday, March 23, 2012

March Madness, Money, and Osmosis

Christian Laettner is the source of one of the most memorable moments of March Madness.

After attending Duke University, Laettner was drafted as the third overall selection in the 1992 NBA draft and signed a multi-million dollar contract. To be more specific, he made $61.5 million dollars during his NBA career. As you can read here, Laettner has not only squandered his fortunes, but he owes around $30 million dollars.

Laettner's financial problems are far from anomalous to the rich. Some of my favorite celebrities have had to file bankruptcy including Kim Basinger, George Best, and Archie Griffin. Ironically, the founder of General Motors and Chevrolet (William C. Durant) went bankrupt. Unfortunate for him, the government did not believe in bailouts then and he finished the rest of his life managing a bowling alley in Flint, Michigan. It seems that having a lot of money does not necessarily correlate with knowing how to manage money.

Dan Kadlec just noted in this piece that based on research, most parents do not know how to talk to their children about money. Yet, affluent school districts across the country do not feel it is necessary to provide their students with financial tools and concepts to make wise and informed choices. I recently asked a local district leader why they do not incorporate financial literacy into their curriculum. His argument was that because the families in his district are affluent, those are not the kinds of problems their students will have to face. As if money management skills are learned through osmosis.

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